India’s retail inflation measured by the Consumer Price Index (CPI) moderated in December to 5.72 percent on an annualized basis following a sustained decline in the prices of food commodities on account of favourable rabi season output. With this, the country’s CPI remained below the Reserve Bank of India’s (RBI’s) maximum tolerance limit of 6 percent for the second consecutive month in a row.

Data compiled by India’s Ministry of Statistics & Programme Implementation (MOSPI) showed India’s retail inflation in December declined marginally from 5.88 percent reported in the sequential previous month i.e. November 2022, but an increase from the 5.66 percent recorded in the corresponding month last year. Sequentially, the headline inflation declined by 0.4 percentage points against a contraction of 0.44 percentage points in November 2022.

The decline can be attributed to easing food prices which accounted for around 40 percent of India’s retail inflation. The MOSPI data showed the country’s food inflation declined to 4.1 percent for December 2022 from 4.67 percent in November 2022, driven largely by a sharp contraction in the prices of vegetables.

“The decline in CPI for December was similar to the one we had projected. The food price Index came in lower at 4.2 percent aided by declining inflation in most categories, with vegetables being the driver. There are still concerns on the non-food side as the miscellaneous category as inflation of 6.2 percent was contributed primarily by 9.6 percent from clothing and footwear and 11 percent from fuel. This will remain sticky as the government is not lowering excise duties on fuel, while companies are still in the process of passing on the higher input costs to consumers,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

While retail inflation in vegetables declined by a staggering 15.08 percent in December against a contraction of 8.08 percent in November, that of fuel and light increased mildly to 10.97 percent against 10.62 percent. Retail inflation print for cereals came in at 13.79 percent in December as against 12.96 in November.

Following a sharp increase in education and healthcare services, retail inflation of education and health services witnessed an increase at 5.9 percent and 6.2 percent respectively which reflects an impact of revision in fees as well as hospital charges. Similarly, personal care and household goods have witnessed higher input costs that have led to inflation in these sectors of 8.1 percent and 7.4 percent respectively.

“We believe that the Reserve Bank of India will continue to increase key interest rates in its February policy by 25 basis points (bps) which can be the last hike for this cycle as the numbers in the coming months would come down due to the base effect,” said Sabnavis.

Positive IIP growth
India’s manufacturing sector returned to positive territory in November at 7.1 percent after it contracted by 4 percent in October. The Index of Industrial Production (IIP) grew by 1 percent in November 2021. According to data released by the National Statistical Office (NSO), the manufacturing sector’s overall output grew by 6.1 percent in November 2022 on a 6.1 percent growth reported in the manufacturing sector.

The mining output rose by 9.7 percent and power generation jumped by 12.7 percent in November 2022 from the sequential previous month. All segments including primary, capital, intermediate, infra, and consumer goods have grown at good rates. The consumer durable and non-durable segments have both registered healthy growth rates of 5.1 percent and 8.9 percent respectively. Growth in consumer goods, however, comes over negative growth rates last year as does capital goods. But, the festival season demand did add to the impetus given by the base effect.

DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com