Retail inflation cools, factory output soars

India’s economy received a dual boost as retail inflation cooled in September, retreating within the central bank’s comfort zone. Simultaneously, factory output surged into double-digit growth territory in August, scaling a 14-month high, indicating an upswing in economic momentum.

Consumer Price Index (CPI)-based inflation eased for the second consecutive month in September to 5.02%, aided by a slower rise in vegetable prices, official data showed on Thursday. Separately, data from the statistics ministry showed factory output grew 10.3% in August, though in part, influenced by a statistical effect.

Cooling inflation and a pick-up in factory output, especially in capital goods, regarded as a proxy for investments in the economy, is welcome news for policymakers and companies that are grappling with high borrowing costs and a slump in export markets.

Retail inflation moderated from 6.83% in August and a 15-month high of 7.44% in July, meeting the Reserve Bank of India’s (RBI) target range of 4-6% during September. A Mint poll of 18 economists estimated retail inflation to slow to 5.4% in September.

Food inflation, measured by the Consumer Food Price Index, which accounts for nearly half of the overall consumer price basket, slowed to 6.56% in September, from 9.94% in August and from 11.51% in July, according to data released by the ministry of statistics and programme implementation (MoSPI) on Thursday.

A moderation across the food and core categories helped bring the overall inflation down during September, said Madan Sabnavis, chief economist at Bank of Baroda.

“While base effects have tempered these numbers, pressures remain in the case of cereals, pulses, milk products and spices. The final outcome of the kharif harvest will have a bearing on inflation from hereon,” Sabnavis said.

“Core inflation has come down further to 4.5%, and there is moderation across all categories, with inflation being less than 5%,” he added.

Earlier this month, RBI left the repo rate unchanged at 6.50%, while maintaining a medium-term retail inflation target of 4%.

Among states, Chhattisgarh and Delhi reported the slowest retail inflation during September at 1.98% and 2.24%, respectively, while states such as Rajasthan (6.53%), Haryana (6.49%), Karnataka (6%) and Telangana (5.97%) recorded the fastest.

Interestingly, Chhattisgarh, Rajasthan and Karnataka are due for elections in the coming months. Inflation often plays a key role in voting patterns.

Meanwhile, India’s double-digit industrial output growth can be attributed to both a favourable base effect and growth across manufacturing, infrastructure and capital goods segments, according to data released by the statistics ministry.

Factory output measured in terms of the Index of Industrial Production (IIP) contracted by 0.7% in August 2022.

Industrial production data indicates the health of the domestic manufacturing sector. The domestic manufacturing sector faces a slowdown due to disruptions such as declining global growth and geopolitical tensions, resulting in price volatility.

The latest data showed that manufacturing sector output increased by 9.3% in August. Mining production rose 12.3%, while power output grew 15.3% during the month.

IIP grew by 6.1% in the April-August period, compared to 7.7% in the year-ago period.

“The IIP print for August, at a 14-month high of 10.3%, exceeded our forecast of 9.3% for that month, with three of the six used-based categories witnessing a double-digit expansion in the month,” said Aditi Nayar, chief economist, head of research and outreach, Icra Ltd

“Looking ahead, a shift in the festival calendar may provide an optical boost to the growth of certain categories within IIP in the months of September and November, with a concomitant moderation in the prints for October,” Nayar added.