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Friday, March 05, 2021

Pressure points ease: Factory output grows, inflation cools

Retail inflation data released separately showed the headline number eased to a 16-month low of 4.06 per cent in January, mainly due to a sharp fall in food inflation.

By: ENS Economic Bureau | New Delhi |
February 13, 2021 2:56:10 am
Nearly 64% of the organisations surveyed were from the manufacturing sector, 14% from the services sector and the rest were involved in both manufacturing and services. (Representational)

After posting a contraction in November, India’s industrial production grew by 1 per cent in December, on the back of a pickup in manufacturing and capital goods output, data released by the National Statistical Office on Friday showed. Though mining output stayed in negative territory, overall absolute index level of the factory output was higher than pre-Covid level seen in February last year.

Retail inflation data released separately showed the headline number eased to a 16-month low of 4.06 per cent in January, mainly due to a sharp fall in food inflation. This is well within the Reserve Bank of India’s medium-term target of 4±2 per cent and lower than the RBI’s projection of 5.2 per cent for the January-March quarter.

The Index of Industrial Production (IIP) had recorded a contraction of 1.9 per cent in November, which has now been revised to (-)2.1 per cent. Factory output had grown by 0.4 per cent in December 2019.

Manufacturing output, which has a weight of 77.6 per cent in the IIP, rose 1.6 per cent in December, while electricity output grew 5.1 per cent. Mining output, however, contracted by 4.8 per cent in December. Capital goods output, an indicator for investment, increased 0.6 per cent in December. Consumer durables and consumer non-durables output increased by 4.9 per cent and 2.0 per cent, respectively. Cumulatively, for April-December, India’s industrial output contracted 13.5 per cent as against 0.3 per cent growth last year. Softening food inflation has helped ease the CPI inflation, which eased to a 20-month low of 1.89 per cent in January from 3.41 per cent in December, with the vegetable inflation recording a 15.8 per cent decline in January.

“Strong base effect in vegetable prices will keep food inflation low over the next six to nine months. However, a spike in vegetable prices during the summer months cannot be ruled out,” Sunil Kumar Sinha, principal economist, India Ratings said.

Increase in crude prices and retail prices of petrol and diesel resulted in fuel and light inflation rising to 10-month high of 3.87 per cent in January from 2.92 per cent in the previous month. Core inflation, the non-food, non-fuel inflation component, remained sticky at 5.65 per cent in January, the same level as December, despite an increase in inflation of clothing, footwear and health.

The RBI in its February monetary policy review said the food inflation trajectory will shape the near-term outlook. “ … The outlook for core inflation is likely to be impacted by further easing in supply chains; however, broad-based escalation in cost-push pressures in services and manufacturing prices due to increase in industrial raw material prices could impart upward pressure,” it had said.

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