Retail inflation eases to 3-month low of 5.1% in January, IIP grows 3.8% in December

• Retail inflation eased to a three-month in January mainly on account of lower food prices.
• Twelve of the 22 states witnessed higher than average inflation, especially in large states like Maharashtra, UP, Gujarat, Karnataka.
• India's industrial production grew 3.8% in December 2023, according to official data.

Retail inflation eased to a three-month low of 5.1% in January mainly on account of lower food prices, according to official data released on Monday. Inflation based on the Consumer Price Index (CPI) was at 5.69% in December 2023 and 6.52% in January 2024.

In August 2023, inflation touched a high of 6.83%. According to the data released by the National Statistical Office (NSO), retail inflation in the food basket was at 8.3% in January 2024, down from 9.53% in the preceding month.

“Inflation came in higher for December than our expectations at 5.1% against 4.7%, though lower than that of November which was 5.7%. Food products continue to exert upward pressure on inflation with cereals, vegetables, fruits, pulses, sugar and spices all witnessing high increases. There has been soothing of inflation in the core goods and services which is a relief from the point of view of monetary policy,” said Madan Sabnavis, chief economist at Bank of Baroda.

Twelve of the 22 states witnessed higher than average inflation. It indicates that inflation is still high in large states like Maharashtra, UP, Gujarat, Karnataka, opine experts.

The Reserve Bank of India has been tasked by the government to ensure retail inflation remains at 4%. “With RBI stating risk of food inflation translating into generalised inflation, we expect RBI to continue cautious stance. However, softening of core inflation should provide confidence to trajectory of inflation moving as expected. We think RBI would rather continue with stability priority and continue maintaining 4% inflation target as sacrosanct, and hence we do not see premature easing from RBI,” said Akhil Mittal, senior fund manager-fixed income, Tata Mutual Fund.

Most experts believe that uncertain food prices will keep the central bank cautious. "CPI inflation came in slightly softer than our expectations led by moderation in food prices. Positively though, core inflation softened in line with our expectations. However, uncertainties in food inflation outlook should keep RBI cautious in the near term, with much of action by the RBI expected on the liquidity front," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.

Industrial production grows 3.8% in December 2023

India's industrial production grew 3.8% in December 2023, according to official data released on Monday. Factory output measured in terms of the Index of Industrial Production (IIP) had witnessed a growth of 5.1 per cent in December 2022.

"India's Index of Industrial Production grows by 3.8% in December 2023," an official statement said.

The data released by the National Statistical Office (NSO) showed that the manufacturing sector's output grew 3.9% in December 2023, up from 3.6% in the year-ago month.

In December last year, the mining production rose 5.1% and power output increased 1.2%. IIP grew 6.1% during the April-December 2023 period compared to a 5.5% expansion in the year-ago period.

“Growth has been pulled down by electricity growth which was just 1.2% reflecting lower levels of demand. Eleven of the 23 manufacturing categories witnessed negative growth with the significant one again being electronic items. Textiles too continue to be in the negative zone due to lower export demand,” says Sabnavis.

(With inputs from PTI)