Retail inflation sees marginal uptick
An increase in food prices led to the retail inflation climbing up to 4.48% in October
NEW DELHI: Retail inflation inched up to 4.48% in October due to an uptick in food prices, government data showed on Friday.
The Consumer Price Index (CPI) based inflation was at 4.35% in September and 7.61 per cent in October 2020.
According to the data released by the National Statistical Office (NSO), inflation in food basket rose to 0.85% in October, compared to 0.68% in the preceding month.
The Reserve Bank, which mainly factors in CPI-based inflation while arriving at its bi-monthly monetary policy, has been tasked by the government to keep it at 4%, with a tolerance band of 2% on either side.
The RBI has projected the CPI inflation at 5.3% for 2021-22: 5.1% in second quarter, 4.5% in third; 5.8% in last quarter of the fiscal, with risks broadly balanced. The retail inflation during April-June period of 2022-23 is projected at 5.2%.
India’s growth in factory output eased to 3.1% in September and retail inflation accelerated to 4.48% in October, increasing the policy dilemma for the central bank.
Data released by the statistics office showed the index of industrial production (IIP) decelerated in September as electricity output grew only by 1% due to nationwide coal shortage. Retail inflation accelerated in October as fuel inflation shot up by 14.35% even though food inflation remained less than 1%.
During September, mining and manufacturing output grew 8.6% and 2.7% respectively. Among used based industries, capital goods grew 1.3% while both consumer durables (-2%) and consumer non-durables (-0.5%) contracted.
Fitch Solutions cautioned on Thursday that despite one of the strongest growth outlooks across the emerging markets, policymakers in India are facing rising inflationary pressures, which will start to pose policy challenges, “Policymaking could become slightly more challenging in the months ahead as higher inflationary pressures, stronger growth and still-wide fiscal deficits make life slightly more difficult for policymakers, resulting in possible policy trade-offs,” Fitch Solutions, a sister agency of Fitch Ratings said in a report.
Fitch said year to date inflation averaged 5.2%, which is slightly below its full-year forecast of 5.5% for 2021. “The good news is that inflation remains within the Reserve Bank of India’s target of 4% ± 2%, and the government reappointed the central bank Governor Shaktikanta Das for another three-year term, which will ensure policy continuity. Given still-strong growth and rising inflationary pressures, the market is pricing in another 30-40bps of hikes by December, which poses upside risks to our forecast of 4% for the repo rate by end-2021,” it added.
The International Monetary Fund (IMF) last month raised its inflation forecast for India to 5.6% for this fiscal from the 4.9% estimated in April, citing growing inflationary risks worldwide even as it kept its growth forecast for the year unchanged at 9.5% for Asia’s third-largest economy. Fitch in its latest report maintained FY22 growth forecast for India at 9% and at 7.6% for FY23, which is slightly below consensus forecasts of 9.2%, and above consensus estimates of 7.4% next year.
The central government last week slashed excise duty on petrol and diesel by ₹5 per litre and Rs 10 per litre respectively, offering some relief to consumers on the eve of Diwali. “While this should help to ease price pressures somewhat, we are forecasting Brent crude oil prices to average $D72.00/bbl in 2022, which will add additional pressure to the government’s fiscal accounts, which we forecast will post a deficit of 9.1% of GDP,” Fitch Solutions said.
The Consumer Price Indexbased (CPI) inflation for September 2021 came in at 4.35%, compared with 5.30% in August, data released by the National Statistical Office (NSO) showed on October 12. This is the lowest retail inflation print since April 2021.
The fall in headline retail inflation was primarily on the back of a sharp cooling in food inflation. Consumer Food Price Inflation (CFPI) for September stood at 0.68% in September, compared with 3.1% in August.
CPI inflation has been well within the Monetary Policy Committee’s inflation targeting range of 4 (+/-2)% since December 2020, except the months of May and June, when it crossed the 6% mark.
“Price pressure remain contained and surprised pleasantly helped by base effects and a drop in food prices. We maintain inflation Is likely to average a tad lower than RBI’s newly revised 5.3% for FY22,” said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
In spite of record petrol and diesel prices, headline retail inflation has not crossed the proverbial danger mark, as far as policymakers are concerned. This is because almost 50% of CPI inflation is food inflation, which has more or less been under control.