Rising well above the Reserve Bank of India’s (RBI) medium-term inflation target of 4 per cent, retail inflation soared to a 15-month high of 4.88 per cent in November, while industrial output growth slowed to a three-month low of 2.2 per cent in October, official data released by Central Statistics Office (CSO) showed. The sharp rise in inflation was primarily due to higher food prices, while industrial output growth was hit in October due to a slump in manufacturing and consumer durables sectors.
Inflation based on consumer food price index rose to 4.42 per cent from 1.90 per cent a month ago and 2.03 per cent a year ago. The overall inflation rate, based on Consumer Price Index (CPI), was at 3.58 per cent in October and 3.63 per cent in November, 2016. The previous high was 5.05 per cent in August last year. Industrial output was recorded at 4.1 per cent in September and 4.2 per cent in October last year.
The hike in CPI inflation was broad-based, with a sharp rise across all sub groups. Housing inflation increased to 7.36 per cent from 6.68 per cent a month ago, while core inflation, which excludes food and fuel inflation, rose to an eight-month high of 4.9 per cent. The inflation rate for food and beverages rose to 4.41 per cent from 2.26 per cent in October 2017, while the fuel and light inflation rate rose to 7.92 per cent from 6.36 per cent a month ago.
Inflation rate for eggs shot to 7.95 per cent in November against 0.69 per cent in the previous month, while vegetable prices increased to 22.48 per cent in November from 7.47 per cent last month. The inflation rate for pulses, however, stayed in the negative territory at (-) 23.53 per cent in November as against (-) 23.13 per cent in October.
RBI in its fifth bi-monthly statement on December 6 had projected inflation to rise and range between 4.2-4.6 per cent in the second half of this year due to the increase in house rent allowance by the Centre and recent rise in crude oil prices, especially on account of the OPEC’s decision to maintain production cuts through the next year. The recent cut in GST rates on several retail goods and services “should translate into lower retail prices going forward,” RBI had said.
Economists said that the staggered impact of 7th Pay Commission pay hike on housing inflation is likely to continue for remaining months of this fiscal and is expected to result in an extended pause for any policy rate cut by the RBI. “Some of the factors driving the uptick in the retail inflation in November 2017 would prove to be transient, especially the spike in vegetable prices. Additionally, the impact of the reduction in GST rates on a number of items may pass through into retail prices and inflation in the coming weeks. However, the continued impact of the HRA revision on housing inflation and elevated fuel prices suggest that the CPI inflation is likely to print in a range of 4.4-4.7 per cent in the remainder of FY2018,” Aditi Nayar, Principal Economist, ICRA said.
Industrial output for April-October decelerated sharply to 2.5 per cent against a growth of 5.5 per cent in the year-ago period. In October, growth in the manufacturing sector, which accounts for 77.63 per cent of the index, slowed to 2.5 per cent from 4.8 per cent a year earlier. During April-October, manufacturing grew by 2.1 per cent, down from 5.9 per cent in the same period last fiscal, the CSO data showed.
Consumer durable goods output contracted by 6.9 per cent in October as against a growth of 1.5 per cent in the same month of the previous year. During the first seven months of this fiscal, the output of consumer durables declined by 1.9 per cent as against a growth of 6 per cent last year.
The industrial output, especially of consumer durables, was expected to record an improvement on account of restocking after the roll-out of goods and services tax (GST) but the November print has been on the contrary, economists said. “The expected uptick in production on account of either restocking or meeting enhanced demand has not happened expect in pockets like pharma and auto sectors. Steel continues to benefit from limited government activity in infra space. Consumer demand does not give the impression of being buoyant and hence the next two months will be important to judge whether we are moving away from the low trend witnessed so far,” Madan Sabnavis, chief economist, Care Ratings, said.
Electricity generation rose 3.2 per cent in October against 3 per cent in the year-ago period, while the mining activity recorded almost flat growth of 0.2 per cent in October 2017 against 1 per cent growth in October 2016. In terms of industries, 10 out of the 23 industry groups in the manufacturing sector showed positive growth during October 2017. The industry group ‘Manufacture of pharmaceuticals, medicinal chemical and botanical products’ recorded the highest positive growth of 23.0 per cent, while the industry group ‘Other manufacturing’ showed the highest negative growth of (-) 36.4 percent followed by (-) 20.9 per cent in ‘Manufacture of tobacco products’ and (-) 16.1 percent in ‘Manufacture of rubber and plastic products’, the CSO said.