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India's retail inflation moderates at 5.1% in January on favourable base effect and food prices

12 Feb 2024 18:23 IST
India’s retail inflation measured by the Consumer Price Index (CPI) moderated to reach the lowest in three months at 5.1 percent in January 2024 due to favourable base effect and a decline in food prices, data compiled by the Ministry of Statistics and Programme Implementation (MoSPI) showed on Monday. The CPI inflation for December 2023 and January 2023 was reported at 5.69 percent and 6.52 percent, respectively.

Although food inflation declined to 8.3 percent in January 2024, the speed of fall was lower than expected. India’s food inflation was reported at 9.5 percent in January 2023. Among food items, vegetables (27 percent vs 27.6 percent), pulses (8.7 percent vs 11.1 percent), and oil and flat (steady at 15 percent) continued to exert pressure on the government and the policymakers. A marginal slowdown was seen in the prices of pan, tobacco, intoxicants, clothing and footwear, among others.

“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. Within miscellaneous products and services inflation was higher than average for only personal care products which have been affected by higher input costs,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

Meanwhile, 12 of the 22 states witnessed higher than average inflation thus indicating that it is still considerably high in several large states like Maharashtra, Uttar Pradesh, Gujarat, Karnataka etc. This level of inflation has probably already been factored by the Reserve Bank of India (RBI) in terms of policy response and hence would in a way vindicate the stance taken by the central bank that inflation is still a concern though core inflation has been moderating.

Rajani Sinha, Chief Economist, Care Ratings Ltd, stated, “The headline inflation, which had been on an upward trajectory in the previous two months, reversed course, moderating to 5.1 percent in January 2024. This moderation was driven by a favourable base and a gradual sequential easing, particularly in the food basket. Ongoing deflation in the fuel and light category also continues to support inflationary prints. Core inflation remained subdued and moderated further, consistently staying below the 4 percent threshold for two consecutive months, mainly due to muted consumption demand and a moderation in global commodity prices. Within the food basket, despite sequential moderation in vegetable and fruit prices, inflation of non-perishables like spices and pulses continued to show double-digit trends, warranting close monitoring.”

“Looking ahead, a favourable base effect is expected to persist until July 2024, helping absorb potential upward risks to price pressures to a certain extent. Additionally, the arrival of the early harvest in the market over the next few months is anticipated to alleviate price pressures further. For FY24, we expect inflation to average 5.4 percent, with the January-March 2024 quarter at 5.1 percent.

India’s retail inflation (Consumer Price Index or CPI) (%)

Month

2020

2021

2022

2023

2024

January

7.50

4.06

6.01

6.52

5.1

February

6.58

5.03

6.07

6.44

 

March

5.84

5.52

6.95

5.66

 

April

7.22

4.23

7.79

4.70

 

May

6.27

6.30

7.04

4.31

 

June

6.23

6.24

7.01

4.81

 

July

6.73

5.59

6.71

7.44

 

August

6.69

5.30

7.00

6.83

 

September

7.27

4.35

7.41

5.02

 

October

7.61

4.48

6.77

4.87

 

November

6.93

4.91

5.88

5.55

 

December

4.59

5.59

5.72

5.69

 

Source: Ministry of Statistics and Programme Implementation (MoSPI)


Strong economic growth
The Reserve Bank of India (RBI) experienced a strong momentum in domestic economic activity, the central bank revealed following the Monetary Policy Committee (MPC) meeting held last week. Headline inflation, after moderating to 4.9 percent in October, rose to 5.7 percent in December 2023 due to escalating prices of food, mostly vegetables. The softening in core inflation (Consumer Price Inflation or CPI excluding food and fuel) continued across both goods and services, reflecting the cumulative impact of monetary policy actions as well as significant softening in commodity prices. The uncertainties in food prices, however, continue to impinge on the headline inflation trajectory.

Contrary to the global trend, Indian economic activity remained robust. The First Advanced Estimates placed real GDP growth at 7.3 percent for FY2023-24, marking the third successive year of growth above 7 percent. Going forward, the momentum of economic activity witnessed during FY2023-24 is expected to continue next year. Agricultural activity is holding up well despite lower rainfall, lower reservoir levels, and delayed sowing. Rabi sowing has surpassed last year’s level as well as the normal acreage.

Industrial activity is gaining steam on the back of improving the performance of manufacturing. The early results of corporates in the manufacturing sector remain upbeat driven by higher profit margins. The Purchasing Managers’ Index (PMI) for manufacturing is displaying expansion along with strengthening of the future activity index. The PMI services increased significantly in January 2024, suggesting continued strong expansion. Services sector activity is expected to remain resilient on the back of strong domestic demand and stable global prospects.

“Our survey suggests that investment intentions of private corporates remain upbeat and both services and infrastructure firms are optimistic about overall business conditions. Net external demand is also improving with the narrowing merchandise trade deficit. Taking all these factors into consideration, real GDP growth for FY2024-25 is projected at 7 percent with the April-June 2024 quarter at 7.2 percent, the July-September 2024 quarter at 6.8 percent, October-December 2024 quarter at 7 percent, and the January-March 2025 quarter at 6.9 percent. The risks are evenly balanced,” said the RBI Governor Shaktikanta Das.

IIP rises in December
India’s factory activity denoted by the Index of Industrial Production (IIP) rose to 3.8 percent in December 2023, thanks to a resurgence in both wholesale and retail trade and a revival in consumer sentiment. IIP for November 2023 and October 2023 was recorded at 2.4 percent and 11.7 percent respectively, data compiled by the Ministry of Statistics and Programme Implementation (MoSPI) showed. The factory output growth stood at 5.1 percent in December 2022.

For the April-December 2023-24 period, the IIP growth works out to be 6.1 percent, up from 5.5 percent in the corresponding period of the previous year. MoSPI showed a decline in power generation growth to 1.2 percent on a year-on-year (yoy) basis in December 2023 against 5.8 percent reported in November 2023. In December 2023, the Mining sector output plunged to 5.1 percent compared to 6.8 percent in the previous month, and 10.1 percent was recorded in December 2022. However, manufacturing sector output grew by 3.9 percent yoy in December 2023, after growing 3.6 percent in the corresponding month of the previous year.

“IIP growth at 3.8 percent was higher than our expectations. Now, cumulative growth is at 6.1 percent for the first three quarters which augurs well for the performance of the manufacturing sector in terms of gross domestic product (GDP). Eleven out of the 23 manufacturing categories witnessed negative growth with the significant one again being electronic items. Sustenance of such growth is essential to ensure that momentum is maintained and that will be seen in the next three months,” said Sabnavis.

DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com