India’s retail inflation moderates to 5.48% in November, IIP expands to 3.5% in October
- India's retail inflation moderated to 5.48 per cent in November, with food inflation easing to 9.04 per cent from 10.87 per cent in October.
Hopes of an early rate cut were rekindled on Thursday as retail inflation fell back within the central bank's tolerance band in November, while factory output hit a three-month high in October, in good news for the economy that slowed in the second quarter.
Retail inflation based on the consumer price index (CPI) fell to a three-month low of 5.48% in November from the 14-month high of 6.21% in October, statistics ministry data showed. AMint poll of economistshad estimated retail inflation to fall to 5.5%, driven by a seasonal decline in vegetable prices.
Inflation fell as vegetable prices cooled due to rising supplies, while factory output growth touched 3.5% thanks to higher production of consumer durables and garments.
Also read | Inflation chills rate cut hopes; industrial output is saving grace
"If the inflation trajectory as laid out by the Reserve Bank of India (RBI) in its December 2024 policy materializes and it remains around 4% beyond 2QFY26 along with a convincing fiscal arithmetic of Union Budget FY26, the long-awaited rate cut may take place in February 2025," said Devendra Pant, chief economist at India Ratings.
"The favourable progress of rabi sowing becomes critical for retail inflation, given that food inflation has been the leading driver in recent times. This, along with the subdued trend in inflation of the majority of the items, is expected to help the headline retail inflation head closer to 4% from end-FY25," he added.
Amid rate cut calls
The decline in inflation comes at a time when senior government functionaries including finance minister Nirmala Sitharaman and commerce Piyush Goyal have called for lower interest rates. On Wednesday, Sitharaman said inflation was pressing global challenge that transcends borders and defies individual nations’ efforts, calling for collective action to tackle the issue effectively.
At times of high inflation, central banks raise interest rates to make borrowing costlier, which reduces demand and ultimately brings down consumer spending and inflation. The RBI aims to keep inflation within a target band of 2-6%. Last week, the RBI's Monetary Policy Committee (MPC) kept the key repo rate unchanged at 6.5% for the eleventh consecutive time, keeping interest rates unchanged for 22 months.
Also read | India's Inflation Story: Here are five key things you should know
On Friday, RBI said it expects 4.8% CPI inflation for FY25, with 5.7% and 4.5% likely in the third and fourth quarters. Inflation has stayed below 5% since March, except October, when it hit 6.21%.
The fall in retail inflation in November was aided by a slower rise in the prices of food items such as cereals, eggs, milk products, fruits, vegetables, and pulses during the month compared to October. However, prices of meat, oil, and fats rose.
Food inflation, which accounts for nearly 40% of the overall consumer price basket, rose 9.04% year-on-year in November, compared with 10.87% in April.
Elevated for over a year
Food prices have remained elevated for over a year now, primarily due to monsoon disruptions in some parts of the country. Food inflation has consistently stayed above 8% since last November.
"The November CPI inflation came broadly in line with expectations. While the Q3 average is expected to remain elevated, we see the winter crop arrivals to provide relief in the coming months," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. "We expect inflation to slowly inch towards the RBI medium-term target of 4% by mid-CY25 (calendar year 2025) providing room for monetary easing from February policy. However, global environment and food price volatility will be key risks to the timing of the monetary easing cycle," she added.
Also read | Sitharaman flags inflation, geopolitics as global economic hurdles
Meanwhile, core inflation, which excludes food and fuel prices, stood at 3.9% in November 2024, up from 4% the previous month, according to Icra’s chief economistAditiNayar. Nayar expressed optimism about the rabi crop, pointing to high reservoir storage and La Nina conditions. "In our view, if the headline CPI inflation eases to 5.0% or lower by December 2024, the likelihood of a rate cut by the MPC in its February 2025 meeting would be very high," she said. "We maintain our baseline expectation of two rate cuts of 25 bps each in the awaited rate-cutting cycle," she added.
Yield on the benchmark 10-year government bond closed at 6.845% on Thursday, marginally up from 6.71% on Wednesday, before the release of inflation data.
"We expect inflation may fall towards 5.2%-5.3% for December 2024. With inflation expected to soften going ahead, it opens up space for RBI for policy easing to support growth," said Akhil Mittal, senior fund manager, fixed income at Tata Asset Management.
Industrial output rises
Meanwhile, industrial output rose to a three-month high of 3.5% year-on-year in October, up from 3.1% in September, driven by a boost in consumer durables and garment manufacturing during the festival season, matching the 3.5% forecast in a Reuters poll of economists.
During October, manufacturing output grew by 4.1% year-on-year, up from 3.9% in September, while mining and electricity output reported annual growth of 0.9% and 2%, compared to 0.2% and 0.5%, respectively, in September. Consumer durables output, including household appliances and vehicles, grew 5.9% in October, down from 6.5% in the previous month.
Meanwhile, capital goods output increased 3.1% year-on-year in October, compared to 3.6% in September. Output for primary goods increased 2.6% year-on-year in October, up from 1.8% in September.
Also read | Inflation likely eased to 5.5% in November: Mint poll
"The data underscores a fragile industrial landscape, where isolated gains in manufacturing mask broader weaknesses. While the breadth of growth across 18 of 23 manufacturing sub-sectors is encouraging, the subdued performance in core sectors like mining and electricity points to inefficiencies," said Arsh Mogre, economist, Institutional Equities, Prabhudas Lilladher.
"The sluggish momentum in capital goods raises concerns over investment appetite, critical for sustaining long-term industrial growth. With external headwinds and domestic bottlenecks persisting, the road ahead demands targeted policy interventions to unlock industrial potential and sustain the recovery trajectory," he added.
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Business NewsEconomyIndia’s retail inflation moderates to 5.48% in November, IIP expands to 3.5% in October
First Published:12 Dec 2024, 04:13 PM IST
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