Inflation drops to 15-month low of 5.66% in March as food prices ease

“Unless the feared heatwave leads to a rapid rise in prices of perishables, inflation may report a substantial base-effect led drop to around 5.0-5.2% in the next two prints, which will reinforce the MPC’s decision to pause in April 2023. With reasonably healthy reservoir levels, and the El Nino expected to materialise only in the second half of the monsoon season, kharif sowing may not be impacted. However, any subsequent deficiency in monsoon rainfall could affect yields and food inflation, which along with any further hardening in crude oil prices remains a risk for the inflation trajectory,” Aditi Nayar, Chief Economist, ICRA said.

Retail inflation based on the Combined Price Index (Combined) had risen to 6.95 percent in March 2022 from 6.07 percent in February 2022 and then stayed above 7 percent-mark during April-June 2022.

In March 2023, food inflation, based on consumer food price index, eased to 4.79 percent from 5.95 percent a month ago and 7.68 percent a year ago. Among the sub-groups, while vegetables continued to remain in deflationary mode for the fifth consecutive month at (-)8.51 percent, cereals inflation marked the reversal of an increasing trend of nine months by moderating to 15.27 percent from 16.73 percent. Inflation rate for milk and products also eased marginally to 9.31 percent in March from 9.65 percent in February. Clothing and footwear inflation eased to 8.18 percent in March from 8.79 percent a month ago, while fuel and light inflation rate moderated to 8.91 percent from 9.9 percent.

“It appears that the government interventions have helped in arresting increasing inflation of cereals and products. Impact on abnormal heat conditions in March and unseasonal rains did not have any impact on wheat pieces. Progress of the 2023 monsoon will have some impact on 2023 cereals and products inflation,” Sunil Sinha, Principal Economist, India Ratings and Research said.

In the Index of Industrial Production (IIP), in absolute terms, it decreased to 138.7 in February from 146.9 in January but was higher than 131.4 in February 2022. Manufacturing, which accounts for 77.6 percent of the weight of the IIP, decreased to 136.8 in February from 144.8 in January but was higher than 129.9 in February 2022. In percentage terms, manufacturing grew 5.3 percent in February as against 4.0 percent a month ago and 0.2 percent a year ago.

“The slowdown in manufacturing was particularly prominent in export-oriented sectors – such as textiles, leather and pharmaceuticals – as weak external demand weighed on production. Some signs of softening were also visible in manufacturing of electrical equipment, electronics and vehicles. This is corroborated by capital goods imports data, which showed continued expansion in February in y/y terms, albeit at a slower pace. Similar to the trend seen in manufacturing, mining and electricity output growth remained steady on a y/y basis, but declined sharply in m/m terms,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays said.