Food prices drive November inflation to 3-month high; October IIP at 16-month peak

The inflation rate for consumers had moderated to 4.87 per cent in October 2023 and has picked pace again in November, marking the 50th month of staying above 4 per cent mark in the 4+/- 2 per cent band of medium-term inflation target set by the Reserve Bank of India (RBI).

Consumer Food Price Index (CFPI) recorded an inflation rate of 8.70 per cent in November, up from 6.61 per cent in October and 4.67 per cent in November 2022. However, core inflation – non-food, non-fuel segment – eased further to 4.2 per cent in November from 4.4 per cent in the previous month in an indication of moderate input cost pressures and weakening of demand.

Inflation rate for the food and beverages segment, which carries a weight of 45.86 per cent in the Consumer Price Index (CPI), increased to 8.02 per cent in November from 6.24 per cent in October. Vegetable inflation shot up to 17.7 per cent in November as against 2.7 per cent in the previous month. 70 per cent of the food and beverages sub-components, by weight, saw 6 per cent or higher inflation in November, Gaura Sengupta, economist with IDFC FIRST Bank said in a note.

Food prices are seen to remain uncertain going ahead, as was also pointed out by the RBI in its latest monetary policy review announced last week. On Friday, RBI Governor Shaktikanta Das had also flagged the risk from rising vegetable prices, stating that high-frequency food price indicators “point to an increase in prices of key vegetables which may push retail inflation higher in the near-term”. “The ongoing rabi sowing progress for key crops like wheat, spices and pulses needs to be closely monitored. Elevated global sugar prices are also a matter of concern,” he had said. The Monetary Policy Committee had kept the repo rate unchanged at 6.50 per cent.

Inflation rate for cereals, pulses and spices continued to be in double digits in November at 10.27 per cent, 20.23 per cent and 21.55 per cent, respectively. Fuel and light group continued to be in negative territory at (-)0.77 per cent in November as against (-)0.39 per cent in October.

Clothing and footwear inflation rate, however, moderated to 3.90 per cent in November from 4.31 per cent in the previous months, while housing inflation eased to 3.55 per cent in November from 3.80 per cent. Miscellaneous inflation, representing services mainly, also moderated to 4.38 per cent in November from 4.40 per cent in October in the previous month.

In the rural-urban split, retail inflation rate in rural areas was 5.85 per cent in November, continuing to be higher than urban areas, which registered an inflation print of 5.26 per cent. Food inflation for rural areas was 8.38 per cent in November, lower than 9.28 per cent in urban areas.

With caution on food prices expected to remain in the coming months, the RBI is expected to maintain a prolonged pause. “The key risk to inflation outlook remains from food inflation due to the uneven monsoon performance and low reservoir levels. The moderation in core inflation and decline in inflation expectations indicates that generalisation of price pressures has not taken place.

Hence, RBI is expected to remain on prolonged pause extending into mid-FY25. Headline inflation is expected to moderate towards the 4 per cent-target on a durable basis only from Q2FY25 onwards. Hence the monetary policy stance ‘withdrawal of accommodation’ is unlikely to change anytime soon. RBI’s focus will remain on keeping liquidity conditions tight, to prevent generalisation of price pressures and support transmission of past rate hikes,” Sengupta said.

Eight of the 22 major states/ UTs registered an inflation rate above 6 per cent in November, with the highest rate in Odisha (7.65 per cent), followed by Rajasthan (6.99 per cent).

“Clearly, states where food products have higher weight in the index have registered higher top line inflation,” Madan Sabnavis, Chief Economist, Bank of Baroda said.

On the industrial output front, manufacturing, which accounts for 77.6 per cent of the weight of the IIP, grew by 10.4 per cent in October as against 4.9 per cent in September and (-)5.8 per cent in October 2022. In absolute terms, it inched up to 141.8 in October from 141.2 in September and 128.5 in the year-ago period. Mining and electricity output recorded growth of 13.1 per cent and 20.4 per cent, respectively. Primary, infrastructure/ construction, and capital goods recorded growth rates of 11.4 per cent, 11.3 per cent and 22.6 per cent, respectively, in October this year.

Cumulatively, during April-October, the first seven months of the financial year, factory output has grown 6.9 per cent as against 5.3 per cent in the year-ago period.

As per the IIP data, 19 of the 23 sectors in manufacturing registered growth in October, with manufacture of transport equipment, machinery and equipment, motor vehicles, trailers and semi-trailers among the highest growing sectors. Furniture, apparel and computer and electronics were among the significant non-performers.

In terms of the use-based industries, consumer durables output, which reflects consumption demand, recorded growth of 15.9 per cent in October with a low base of (-)18.1 per cent. Consumer non-durables output, which reflects fast-moving consumer goods, registered a 8.6 per cent growth in October as against (-)13.0 per cent in the year-ago period. However, notably, as per index value, consumer durables and non-durables were lower than even October 2020 and 2021 levels, signalling weakness in demand.

“Despite healthy consumer durables YoY growth in October 2023, the weakness in the current consumption demand becomes apparent when we see that the output of consumer durables in October 2023 is only 1.1 per cent higher than February 2020,” a note by India Ratings and Research by Principal Economist Sunil Kumar Sinha, Principal Economist and Senior Analyst Paras Jasrai said.

Aditi Nayar, Chief Economist, ICRA said, “Notwithstanding the healthy YoY growth, the index values for consumer durables and non-durables in October 2023 lagged their October 2021 levels, when the festive season had a similar onset, suggesting that caution should be employed while interpreting the higher-than-expected IIP expansion…ICRA expects the YoY IIP growth to slow down sharply to 2-4 per cent in Nov 2023, driven by the fewer number of working days amid the late onset of the festive season in 2023 vis-à-vis 2022, as well as an unfavourable base (+7.6 per cent in Nov 2022), as signalled by the sharp moderation in growth of several high frequency indicators.”