More expensive food will keep retail inflation high in February; The growth of Jan IIP is decreasing
High food prices kept retail inflation above 5 percent in February, while industrial production growth declined in January, driven by a slowdown in industrial production growth.
Data released by the National Bureau of Statistics shows that consumer price index (CPI)-based inflation eased slightly from 5.10 percent in January to 5.09 percent in February, reflecting a moderation in core inflation (excluding food and oil) to 5.09 percent in February. 3.3 percent was offset by a rise in food inflation to 8.7 percent from 8.3 percent in the previous month.
On the other hand, industrial production index (IIP) growth eased to 3.8 percent in January after an upwardly revised 4.2 percent growth in the previous month, while expansion in the manufacturing sector slowed to 3.2 percent.
However, growth in mining (5.9 percent) and electricity (5.6 percent) accelerated during the month.
Among foodstuffs, the prices of vegetables (30.25 percent) and protein-rich products such as meat and fish (5.21 percent) and eggs (10.69 percent) increased.
Prices of other food items such as grains (7.60 percent), pulses (18.9 percent), sugar (7.48 percent) and spices (13.51 percent) remained high despite the slowdown during the month.
Bank of Baroda chief economist Madan Sabnavis said February inflation was purely a food-driven phenomenon, which would continue to put pressure on prices in the coming months.
“Vegetable inflation is at its highest and onion prices are rising again (and will continue to show such trends). Moreover, horticulture production this year is expected to be lower than last year,” he added.
Echoing similar views, Rajani Sinha, chief economist at CARE Ratings, said high inflation in specific food categories poses a risk that price pressures may increase and loosen inflation expectations.
“That said, the outlook for food inflation has improved in recent months due to marginally increased area under rabi sowing compared to the previous year. Government supply-side initiatives such as the Open Market Sales Program (OMSS) and export restrictions will further help cool food prices. However, it is noteworthy that reservoir levels, especially in eastern and southern India, remain at low levels. Consequently, the upcoming monsoon in FY25 is very important for the trajectory of food inflation,” she added.
Last month, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5 percent for the sixth time in a row. The country maintained its inflation forecast for 2023-2024 at 5.4 percent, while the forecast for the March quarter was lowered to 5 percent from 5.2 percent estimated earlier.
“The inflation trajectory going forward would be determined by the outlook for food inflation, about which there is significant uncertainty. Adverse weather conditions remain the main risk, impacting the rabi crop. Rising geopolitical tensions are leading to supply chain disruptions and price volatility of key commodities, especially crude oil,” RBI Governor Shaktikanta Das said in his post-MPC statement.
During the IIP, only eight of the 23 manufacturing industries, including tobacco, apparel, food products, paper and computers, witnessed a contraction in January. In the usage-based segment, capital goods (4.1 percent), intermediate goods (4.8 percent), infrastructure goods (4.6 percent) and consumer durables (10.9 percent) saw accelerated growth this month, while primary goods ( 2.9 percent) saw accelerated growth this month. percent) saw a sequential moderation and consumer staples (-0.3 percent) fell.
“The contraction in consumer staples continues to reflect weakness in consumption and it is worrying that it has remained weak in recent months. With CPI inflation easing, it would be interesting to see if this translates into improved consumption demand in the coming quarters,” Sinha added.
First print: March 13, 2024 | 12:11 pm IST