Retail inflation falls, industrial output expands

NEW DELHI: India’s retail inflation rate fell to 5.5% in November after rising to a 14-month high of 6.2% in October while industrial output rose 3.5% last month, marking a twin cheer for the economy. Though still higher than the central bank’s target of 4%, the lower inflation print brightens the possibility of a rate cut when the Reserve Bank of India (RBI) Monetary Policy Committee meets February 5-7, experts said.

“If the headline CPI (Consumer Price Index) inflation eases to 5.0% or lower by December, the likelihood of a rate cut by the Monetary Policy Committee (MPC) in its February meeting would be very high,” said Aditi Nayar, chief economist at ICRA. “We maintain our baseline expectation of two rate cuts of 25 bps (basis points) each in the awaited rate-cutting cycle.”

Moderation in vegetable prices and arrival of the winter season contributed to the decline, official data released Thursday showed.

The RBI kept the policy rate unchanged at 6.5% for the 11th consecutive time at the MPC meeting last week.

Seasonal Jump

Festive demand drove up industrial output in October, aided by manufacturing.

“The improvement in growth of consumer goods output despite high inflation in October is quite encouraging and a positive sign for consumption demand in the economy,” said Paras Jasrai, senior economic analyst at India Ratings and Research.

Manufacturing growth came in at 4.1%, with 18 of the 23 sectors recording expansion. The top three contributors were basic metals (3.5%), electrical equipment (33.1%) and coke and refined petroleum products (5.6%). Mining and electricity recorded growth of 0.9% and 2%, respectively.

Consumer durables IIP slowed in October to 5.9% from 6.5% in September despite the festive season. Consumer non-durables, however, improved for the second consecutive month to 2.7% in October from 2.2% in September, possibly due to improving rural demand.

“The improved real rural wages are gradually helping in lifting consumption demand,” Jasrai said IIP growth is likely to move up in the coming months.Bank of Baroda expects IIP growth in the 4-5% range in the next few months, ending the fiscal year at around 5%. Ind-Ra estimates it at 4.5% in November. ICRA pegs it at 5-7%.

Core sector output, which accounts for 40.27% weight in the IIP, rose to 3.1% in October, official data released last month showed.

Food Focus
Rural areas continued to bear higher inflation at 6% compared with 4.8% in urban areas. Food inflation fell to 9% from a 15-month high of 10.9%. It was higher in rural areas at 9.1% compared with 8.7% in urban locations.

Vegetables recorded an inflation of 29.3%. Potato prices surged to 66.6%, followed by tomatoes at 41.7%, and onions at 5.6%. Cereal and edible oil prices surged by 6.9% and 13.3%, respectively, in November.

“Global prices of palm oil have been elevated which has caused this spike. Vegetable inflation should gradually ease as the tomato and onion price shocks get diluted,” said Madan Sabnavis, chief economist at Bank of Baroda.