Twin boost for economy as factory output powers up, retail inflation cools | Mint
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Business News/ Economy / Twin boost for economy as factory output powers up, retail inflation cools
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Twin boost for economy as factory output powers up, retail inflation cools

Industrial output growth increased in December after falling to an eight-month low in the month before, while retail inflation dropped to a three-month low in January

Overall food inflation fell to 8.3% in January from 9.53% in December, Premium
Overall food inflation fell to 8.3% in January from 9.53% in December,

The Indian economy showed signs of resilience at the beginning of the year as industrial output rose and inflation fell, data released on Monday showed.

While industrial output growth rose to 3.8% in December after falling to an eight-month low of 2.4% in November, consumer price index (CPI)-based retail inflation fell to a three-month low of 5.1% in January, the statistics ministry said.

The latest factory output points to a pick-up in manufacturing momentum in December after a slowdown. In the April-December period, factory output expanded 6.1%, a notch above the 5.4% figure in the same time a year earlier.

December inflation fell to 5.1% from 5.7% in November, aided by a slower rise in prices of food items like cereals, milk and milk products, fruits, pulses and spices. It still remains above the central bank’s target of 4%, but has stayed within its tolerance range of 2-6% for the fifth consecutive month.

Overall, food inflation fell to 8.3% in January, down from 9.53% in December, which saw a sharp rise in prices of vegetables and other food items such as pulses, spices and cereals. Food inflation, measured by the consumer food price index, accounts for nearly half of the overall consumer price basket. It stood at 8.7% in November, 6.61% in October and 6.62% in September.

“Price pressures are easing in earnest, and we think rate cuts will come on to the agenda in the second half of the year," Shilan Shah, deputy chief emerging markets economist at Capital Economics, said.

Earlier, high inflation levels had prompted the government to take supply-side measures such as releasing substantial cereal stocks from reserves while proactively managing the imports and exports of pulses to ensure supplies. The government had also restricted exports of rice and sugar to tame inflation.

“Housing inflation remains weaker than expected, despite strong urban demand," said Gaura Sen Gupta, economist at IDFC First Bank.

A Mint poll of 18 economists estimated retail inflation to fall to 5% in January, primarily on account of cooling food inflation. In January 2023, retail inflation was reported at 6.5%.

Last week, the Reserve Bank India (RBI) left policy rates unchanged, signalling that interest rate cuts may take some more time.

Regulating interest rates is a key instrument for the central bank to control inflation. A higher interest rate regime makes borrowing costs more expensive, which can reduce demand among banks, other financial institutions and even the general public to borrow money. Reducing the supply of money in the market can also bring down consumer spending.

Meanwhile, factory output measured in terms of the Index of Industrial Production (IIP) rose by 3.8% in December 2023 against 5.1% in December 2022. Output in manufacturing rose 3.9% annually, mining 5.1%, and power 1.2%.

Capital goods production, a proxy for fixed investments in the economy, rose by 3.2% annually in December. Alongside, consumer durables production, which highlights consumer sentiment, also rose 4.8% on an annual basis during the month.

“Encouraging sequential growth across the mining, manufacturing and electricity sectors has supported growth during the month despite an unfavourable base," said Rajani Sinha, chief economist at Care Ratings Ltd.

“The other noteworthy aspect was the rebound seen in consumer durables and non-durables output, which grew by 4.8% and 2.1%, respectively. However, the sustenance of this trend remains critical for industrial activity in the coming months," Sinha added.

In December, the monthly industrial output growth was the second slowest in the ongoing fiscal year 2023-24 period after November.

Industrial output growth rate, which was at 4.61% in April 2023, maintained its momentum and staged 10.9% and 11.6% growth, respectively, in August and October, driven by mining output growth, festive demand for manufactured items and electricity generation, before reporting the lowest growth of the year in November.

Latest government data show the Indian economy shooting past expectations to report an impressive 7.6% GDP growth in the September quarter, riding an expansion in the manufacturing sector, leading to the RBI revising its FY24 growth forecast to 7% from an earlier estimate of 6.5%.

The government’s first advance estimates, released last month, have pegged India’s growth at 7.3% in FY24, aided by sustained investment growth and robust output in manufacturing, construction and certain services.

Meanwhile, during January, inflation in vegetables and pulses stood at 27.03% and 19.54% respectively, lower than the 27.64% and 20.73% respectively recorded during December.

Among states, Delhi and Kerala reported the slowest retail inflation at 2.56% and 4.04%, respectively, during January, while Odisha (7.55%), and Telangana (6.34%) recorded the fastest price rice.

However, 10 of the 22 states witnessed higher than average inflation indicating retail inflation is still considerably high in several large states like Maharashtra, UP, Gujarat, and Karnataka.

 

With input from Reuters

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Published: 12 Feb 2024, 05:34 PM IST
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