June retail inflation rises to 3-month high on costlier food; IIP up 5.2% in May


Retail inflation rose to a three-month high of 4.81 per cent in June, mainly on account of higher foods inflation especially prices of cereals and pulses, though it remained within the 4+/- 2 percent band of Reserve Bank of India’s medium-term inflation target, data released by the National Statistical Office (NSO) on Wednesday showed. Meanwhile, India’s factory output grew to a three-month high of 5.2 per cent in May as against 4.5 per cent growth in April, primarily due to pickup in manufacturing and mining output, according to separately released data by the NSO.

The Consumer Price Index (Combined)-based inflation moved up after moderating for four months since February. The RBI, which will be announcing its next bi-monthly monetary policy early next month, mainly factors in the retail inflation while deciding the benchmark interest rate (repo).

Retail inflation stood at 4.31 per per cent (revised upward from 4.25 per cent) in May and 7 per cent in June 2022. The previous high CPI was in March at 5.66 per cent.

Food inflation was recorded at 4.49 per cent in June, higher than 2.96 per cent in May. The food basket accounts for nearly half of the CPI.

The inflation rate was 19.19 per cent in case of spices, 12.71 per cent in ‘cereals and products’, 10.53 per cent in ‘pulses and products’, and 7 per cent in eggs. Fruits too were marginally costlier in June year-on-year. However, there was a decline in inflation in ‘oil and fats’ (- 18.12 per cent) and vegetables (-0.93 per cent).

Aditi Nayar, Chief Economist, Head – Research and Outreach, ICRA, said the spike in vegetable prices is set to push the CPI inflation to an uncomfortable 5.3-5.5 per cent in July 2023. “We expect the vegetable price shock to result in the Q2 FY2024 CPI inflation exceeding the (RBI’s) Monetary Policy Committee’s last forecast of 5.2 per cent. Accordingly, we anticipate that the Committee will retain its hawkish tone in August 2023, keep the repo rate unchanged and signal that a pivot to rate cuts remains distant,” she said.

Meanwhile, industrial output rose to 5.2 per cent in May from 4.5 per cent in April.

The factory output growth measured in terms of the Index of Industrial Production (IIP) stood at 19.7 per cent in May 2022, mainly due to a lower base effect. “The growth rates over corresponding period of previous year are to be interpreted, considering the unusual circumstances on account of COVID 19 pandemic since March 2020,” an official statement explained.

Manufacturing sector’s output grew 5.7 per cent in May as against a 20.7 per cent expansion a year ago, while the mining sector grew by 6.4 per cent. The electricity sector reversed the sequential month-on-month contraction seen in the past couple of months to grow 0.9 per cent year-on-year in May. Capital and infrastructure/construction goods recorded a growth of 8.2 per cent and 14 per cent, respectively. “The strong growth in capital and infrastructure goods got solid support from the government (union plus 20 states) capex which at Rs 1.2 trillion grew 164% YoY in May 2023. Importantly, the consumer goods on the back of receding of inflation and a favourable base effect have bounced back somewhat after a muted growth in the past few months,” Devendra Kumar Pant, Chief Economist, India Ratings said.


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