Retail inflation surges to 4-month high; IIP dips to 8-month low

This marked the second consecutive month of rise in headline retail inflation and four calendar years and a quarter (51 months) of retail inflation staying above the 4 per cent mark in the 4 +/- 2 per cent band of medium-term inflation target set by the Reserve Bank of India (RBI).

The annual rate of food inflation, as measured by the Consumer Food Price Index, surged to 9.53 per cent in December from 8.70 per cent in November and 4.19 per cent a year ago. Urban areas recorded double-digit 10.42 per cent food inflation in December and rural areas registered 8.49 per cent.

However, core inflation — non-food, non-fuel segment — eased further to sub-4 per cent level, the first time in the post-pandemic period, to 3.9 per cent in December from 4.1 per cent in November.

“Core inflation has declined to 48 months low of 3.89% in December 2023. Declining core inflation at a time of strong economic growth is a conundrum,” a note by India Ratings’ Principal Economist Sunil Kumar Sinha and Senior Analyst Paras Jasrai said.

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 8.70 per cent in December from 8.02 per cent in November.

Vegetables inflation surged to 27.64 per cent in December from 17.70 per cent in November, while pulses and spices inflation rates rose to 20 per cent levels in December at 20.73 per cent and 19.69 per cent, respectively. Inflation rate for cereals also continued to be high at 9.93 per cent, though it was slightly lower than 10.27 per cent in November.

Even as miscellaneous inflation, which broadly indicates price change for services, inched lower to 4.07 per cent in December from 4.38 per cent in November, goods inflation remained high at nearly 9.5 per cent. Economists said this is likely to result in a prolonged pause in the rate cycle by the RBI.

“CPI inflation at 5.7% is on expected lines with goods inflation leading at 9.5%. Pressure points are products like pulses, vegetables, fruits which will ease only with supplies increasing…personal-care products and health still have cost side issues. These headline numbers aligned with RBI projections which clearly indicate status quo for extended period,” Madan Sabnavis, Chief Economist, Bank of Baroda said.

Clothing and footwear inflation rate moderated to 3.61 per cent in December from 3.90 per cent in November, while housing inflation increased to 3.63 per cent in December from 3.55 per cent in November. Fuel and light group continued to be in negative territory at (-)0.99 per cent in December as against (-)0.77 per cent in November.

In the rural-urban split, retail inflation rate in rural areas increased to 5.93 per cent in December from 5.85 per cent in November, while urban areas registered an inflation print of 5.46 per cent in December as against 5.26 per cent in the previous month.

The outlook for the inflation for certain items like rice, wheat and pulses remains “somewhat vulnerable”, given the estimated fall in annual kharif production, as well as the year-on-year lag in the ongoing rabi sowing season amid El Nino conditions, Aditi Nayar, Chief Economist, ICRA said.

Nine of the 22 major states/UTs registered an inflation rate above the headline inflation rate of 5.69 per cent in December, with the highest rate in Gujarat (7.07 per cent), followed by Rajasthan (6.95 per cent), Haryana (6.72 per cent), Karnataka (6.65 per cent) and Maharashtra (6.05 per cent).

On the industrial output front, manufacturing, which accounts for 77.6 percent of the weight of the IIP, grew by 1.2 per cent in November as against 10.2 per cent in October and 6.7 per cent in November 2022.

Mining and electricity output recorded growth of 6.8 per cent and 5.8 per cent, respectively as against 9.7 per cent and 12.7 per cent in the year-ago period. Primary and infrastructure/construction goods recorded growth rates of 8.4 per cent and 1.5 per cent, respectively, in November this year as against 4.8 per cent and 14.3 per cent in the year-ago period.

Output of capital goods — an indicator of investment — slumped to a 13-month low of (-)1.1 per cent in November as against 20.7 per cent growth in the year-ago period and 21.3 per cent in the previous month.

On the consumption front, consumer durables output, which reflects consumption demand, slipped to a five-month low of (-)5.4 per cent in November. Consumer non-durables output, which reflects fast-moving consumer goods, declined to 13-month low of (-)3.6 per cent growth in November as against 10 per cent growth in the year-ago period.

Cumulatively, during April-November, the first eight months of the financial year, factory output has grown 6.4 per cent as against 5.6 per cent in the year-ago period.

As per IIP data, just six out of the 23 sectors in manufacturing registered growth in November, with manufacture of coke and refined petroleum products, beverages, rubber and plastic products among the highest growing sectors. Computer, electronics and optical products, electrical equipment, furniture, apparel and leather were amongst the significant non-performers.