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Thursday, April 09, 2020

Factory output shrinks, spike in retail inflation

The spike in retail inflation was stoked by higher price levels of food items such as vegetables, eggs, meat and fish and fuels.

By: ENS Economic Bureau | New Delhi | Updated: February 13, 2020 4:15:10 am
Factory output shrinks, spike in retail inflation While the deterioration of the growth-inflation mix is bad news, the pronounced contraction in consumer goods production highlights the continuing weakness in demand. (Representational Image)

A renewed slide in the manufacturing sector forced India’s factory output to contract in December even as retail inflation accelerated for the sixth straight month in January, raising fresh question marks over the claims of a turnaround in the country’s economic trajectory.

National Statistical Organisation data released Wednesday showed that the Index of Industrial Production contracted 0.3 per cent in December from a 1.8 per cent growth provisionally recorded a month ago while retail inflation surged to 7.59 per cent in January as against 7.35 per cent in December. The spike in retail inflation was stoked by higher price levels of food items such as vegetables, eggs, meat and fish and fuels.

While the deterioration of the growth-inflation mix is bad news, the pronounced contraction in consumer goods production highlights the continuing weakness in demand and, according to analysts, could be a pointer to the festival season uptick being relatively short-lived. On Tuesday, Finance Minister Nirmala Sitharaman had said the economy is on the mend, relying on seven indicators to assert that “green shoots” have started to emerge in the economy.

January’s Consumer Price Index-based inflation data showed that core inflation (inflation estimate that excludes food and fuel items), at 4.16 per cent, surged sharply higher from its October trough, with analysts predicting that headline inflation has peaked and should glide lower from February onward as the base turns favourable and vegetable prices start declining on improved supplies.

In the case of the IIP, on a sector-wise basis, the manufacturing sector output declined by 1.2 per cent in December compared to growth of 2.9 per cent in the same month a year ago while electricity generation also dipped 0.1 per cent as against a growth of 4.5 per cent in December 2018. Mining sector output grew by 5.4 per cent, compared to a contraction of 1 per cent earlier.

Economic growth estimated by the NSO is projected to hit an 11-year low of 5 per cent in 2019-20 on the back of tepid consumption and sluggish investment sentiment.

The Monetary Policy Committee of the Reserve Bank of India on Thursday left policy rates unchanged for the second time, citing evolving growth-inflation dynamics. RBI has slashed policy rates by 135 basis points so far in 2019. The MPC has sharply raised consumer price inflation projection to 6.5 per cent for the fourth quarter of fiscal year 2020 from 5.1-4.7 per cent earlier. The panel pegged CPI inflation for the first half of FY21 at 5.4-5.0 per cent compared with 4-3.8 per cent earlier.

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