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Retail inflation rose to a three-month high of 4.81 percent in June, mainly due to higher food price inflation especially that of grains and pulses, although it remained within the RBI’s 4 +/- 2 percent range over the long term. average. Inflation target, data released by the Office for National Statistics on Wednesday showed. Meanwhile, factory output in India grew to a three-month high of 5.2 percent in May versus 4.5 percent in April, mainly due to a rebound in manufacturing and mining output, according to data released separately by NSO.
The inflation rate based on the consumer price index (combined) rose after moderating for four months since February. The Reserve Bank of India, which will announce its next fortnightly monetary policy early next month, will mainly work on retail inflation with benchmark interest rate (repo) setting.
Retail inflation was 4.31% (revised up from 4.25%) in May and 7% in June 2022. The previous high CPI was in March at 5.66%.
Food price inflation registered 4.49 percent in June, up from 2.96 percent in May. The food basket accounts for nearly half of the consumer price index.
The inflation rate was 19.19 percent in the case of spices, 12.71 percent in “grains and products,” 10.53 percent in “legumes and products,” and 7 percent in eggs. Fruit was also marginally more expensive in June year over year. However, there was a decrease in inflation in “oil and fats” (-18.12 percent) and vegetables (-0.93 percent).
The sharp rise in vegetable prices is set to push CPI inflation to an uncomfortable range of 5.3-5.5 per cent in July 2023, said Aditi Nayar, Chief Economist, Head of Research and Outreach, ICRA. “We expect the vegetable price shock to to the occurrence of Q2 FY2024 CPI inflation exceeding the RBI’s latest forecast of 5.2 percent.Accordingly, we expect the Committee to maintain its hawkish tone in August 2023, keep the repurchase rate unchanged, and indicate that the pivot to cut Interest rates are still far away.
Meanwhile, industrial output rose to 5.2 percent in May from 4.5 percent in April.
Factory production growth measured in terms of the Industrial Production (IIP) index was 19.7 percent in May 2022, mainly due to a lower base effect. An official statement explained: “The growth rates should be interpreted compared to the similar period of the previous year, taking into account the unusual circumstances due to the COVID 19 pandemic since March 2020.”
Manufacturing sector output grew by 5.7 percent in May against an increase of 20.7 percent a year earlier, while the mining sector grew by 6.4 percent. The electricity sector reversed the sequential month-on-month contraction seen in the past two months, growing 0.9 percent year-on-year in May. Capital goods and infrastructure/construction registered growth of 8.2 percent and 14 percent, respectively. “Strong growth in capital goods and infrastructure got strong support from the government (Union plus 20 states) which amounted to Rs 1.2 trillion growing by 164% year-on-year in May 2023. More importantly, consumer goods on the back of declining inflation and favorable benefits Devendra Kumar Pant, chief economist, India Ratings, said the impact of the rule has rebounded somewhat after little growth in the past few months.
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