Home / Economy / India's retail inflation eases to within RBI target but industrial activity contracts

India's retail inflation, which is measured by the Consumer Price Index (CPI), eased sharply to 11-month low of 5.88% on an annual basis in November from 6.77% in October, 2022 amid cooling global commodity prices and higher borrowing costs. The number came within the Reserve Bank of India's (RBI) tolerance band of 2-6% for the first time this year.

The Central Government has mandated the RBI to maintain retail inflation at 4% with a margin of 2% on either side for a five-year period ending March 2026.

Analysts in a poll had predicted annual inflation of 6.40% this month.

Food inflation, which accounts for nearly half the CPI basket, came in at 4.67% in November as against 7.01% in the preceding month.

Moderating global commodity and food prices and a bountiful winter harvest at home are counted on to further ease price pressures.

Aditi Nayar, Chief Economist at ICRA said, "The CPI inflation offered welcome relief, unexpectedly slipping below 6% after a gap of 10 months, with the sharp easing reflecting a base-effect led cooling in food inflation and a correction in vegetable prices, even as there was a worrying sequential uptick in the YoY inflation for miscellaneous items, fuel and light, and pan, tobacco and intoxicants."

"Given the pending pass-through of higher input costs by producers and sustenance of robust demand for services, core inflation is likely to remain elevated in the remainder of FY2023, notwithstanding the recent correction in prices of some global commodities," Nayar said.

Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities said, “November CPI inflation, much lower than expected, dipped to 5.9%, with food prices momentum softening sharply compared to the last few months. Food inflation softened to 6.2%. However, core inflation remained sticky at slightly above 6%."

“We continue to see CPI inflation around 6% till February 2023 before dipping sharply to 5% in March and to around 4.5% in 1QFY24. The inflation trajectory is likely to be slightly below the RBI’s latest estimate. The case for a pause in the February policy itself will get stronger, especially as the next few CPI inflation prints possibly remain below 6%," Rakshit said.

"However, with the focus increasing on sticky core inflation, the February policy will be a tough choice between further tightening and a prolonged pause, especially if global and domestic growth impulses start softening. The skew, for now, remains towards a last 25 bps hike followed by a prolonged pause," he noted.

Vivek Rathi, Director-Research, Knight Frank India, said, "The inflation print within the RBI upper tolerance range of 6% will provide comfort in the policy setting and interest rate action framework in coming months comforting both households and corporate borrowers."


Separately, the factory output, measured in terms of the Index of Industrial Production (IIP), contracted 4% in October, data released by the Ministry of Statistics & Programme Implementation (MoSPI) showed today.

"While the IIP posted a deeper-than-expected contraction, mirroring the anemic performance of exports, this chiefly reflects holidays during the festive period. The YoY growth of most available high frequency indicators improved in November 2022 relative to October 2022, partly reflecting the subdued base owing to the relatively late onset of the festive season in 2021 vis-à-vis 2022," the ICRA Chief Economist said.

"Given that the YoY growth in both these months is impacted by base effects, we believe that an average performance of October and November 2022 would provide a better gauge of the actual growth momentum and demand dynamics," Nayar added.

Rathi added, “The manufacturing output, which has the maximum weightage in the index, is yet to show a strong recovery. Although, the manufacturing sector performance as seen in PMI and improving capacity utilisation has remained strong, we are yet to see its transmission into the industrial production activities. Moderation in consumer durables is an indication of some softening in consumer demand in the economy."

The MoSPI released retail inflation and IIP data for November and October, respectively, at 5.30 pm today.

"Favourable base effect and seasonal correction in food prices drove the Nov CPI inflation to a 10-month low of 5.88%," Elara Capital's Garima Kapoor stated.

Commodity price correction and seasonal softening in food prices led by vegetables are likely to be key tailwinds for the inflation trajectory, Kapoor said.

November's inflation data comes days after the RBI's Monetary Policy Committee increased the repo rate by 35 basis points to 6.25% on 7 December, it's fifth increase in eight months.

According to the latest RBI forecasts, retail inflation is seen averaging 6.6% in October to December before cooling to 5.9% in January to March next year and 5% in April to June 2023.

Meghna Sen
Meghna Sen is a deputy chief content producer at Livemint where she tracks companies, markets, news. She has 5+ years of experience with online and print publications. Email: meghna.sen@htdigital.in
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