Friday, August 12, 2022
HomeMoney & LoansIndia's retail inflation stays above 7%; IIP growth hits 12-month high

India’s retail inflation stays above 7%; IIP growth hits 12-month high




India’s retail inflation rate in June remained above the upper tolerance limit of the central bank for a sixth straight month, increasing chances of further monetary policy tightening, even as industrial production in May jumped to a 12-month high, supported by a low base.



Data released by the National Statistical Office on Tuesday showed that the Consumer Price Index (CPI)-based inflation eased only marginally to 7.01 per cent in June from 7.04 per cent in the previous month, while the Index of Industrial Production (IIP) grew 19.6 per cent in May compared to 6.7 per cent in April.


In April, headline retail inflation had touched an eight-year high of 7.79 per cent.


The CPI for June was primarily driven by sticky food prices. Consumer food price inflation stood at 7.75 percent in June compared with 7.97 in May. Food prices account for nearly half of the inflation basket.


The sub-groups that saw the sharpest year-on-year rise in June were vegetables (17.37 per cent), spices (11.04 per cent), fuel and light (10.31 per cent), and footwear (11.92 per cent).


chart


“Inflation is expected to remain elevated with only a gradual descent through the rest of the year. While the softening global commodity prices provide some relief, the gains will be limited due to a weakening rupee,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.


On June 8, the six-member Monetary Policy Committee (MPC) of the RBI unanimously decided to raise the repo rate by 50 basis points. This followed an off-cycle rate hike of 40 basis points in May, making it a 90 bps rate hike in just over a month. Analysts expect two more rounds of rate hikes.


“We continue to foresee front-loaded rate hikes of 60 bps spread over the next two policy reviews followed by an extended pause, as the MPC will focus on containing inflationary expectations without sacrificing growth,” said Aditi Nayar, chief economist at ICRA Ltd.


On the industrial output front, the biggest driver was electricity, which rose 23.5 per cent. Manufacturing output grew by 20.6 per cent, while mining output rose 10.9 per cent.


“IIP growth has been statistically driven with all components witnessing high growth rates. Within manufacturing, barring pharma, which had negative growth, all industries posted impressive growth. This was also reflected across the primary, intermediate and infra goods,” said Madan Sabnavis, chief economist, Bank of Baroda.


Sabnavis said the growth in industrial output should be viewed with caution as the future course would depend on how inflation impacted consumption trends. “Infra-based industries are likely to sustain with government capex leading the way. But to be sustained, we need to see private investment also pick up which is still feeble,” he said.


According to the use-based classification, all sectors grew at a robust pace, especially consumer durables at 58.5 per cent and capital goods at 54 per cent. However, consumer non-durables grew only 0.9 per cent, signalling that rural demand continues to be weak.


Sunil Kumar Sinha, principal economist at India Ratings, said a significant pick-up in IIP growth was indicative of ongoing economic recovery, but its sustainability was still not a given in view of the raging inflation and adverse global geopolitical situation.

mail Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor



RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments

%d bloggers like this: