Retail Inflation Drops To 4.59% In December From 6.93% In November: Government

Cornelia Mascio
Gennaio 13, 2021

India's index of industrial production (IIP) for November was dragged lower by mining and manufacturing, which both shrank, as per quick estimates.

The Index of Industrial Production (IIP) contracted 1.9 per cent in November after having recorded a growth of 0.5 per cent in September and 3.6 per cent in October.

Retail inflation fell sharply to 4.59 per cent in December, mainly due to declining food prices, government data showed on Tuesday.

The IIP data comes as a dampener to hopes of an economic revival, as factory output in the country had grown 3.6% in October, the highest since a countrywide lockdown was imposed due to the coronavirus lockdown in March past year. It stood at 6.93 per cent in November. Such a high base resulted in deflation of 10 per cent in the vegetables segment. However, this was the only section that saw a decline in prices last month.

"While the considerable softening in CPI inflation in December 2020 offers welcome relief, it is unlikely to prove adequate to allow for rates to be eased in the upcoming policy review, as headline inflation may only record a limited further decline before resuming an uptrend", Aditi Nayar, principal economist at ICRA, said in a note.

Sugar and confectionary prices increased only 0,53 per cent in December, whereas spices got costlier by 10.29 per cent. Inflation in non-alcoholic beverages was recorded at 11.86 per cent and that in prepared meals, snacks, sweets, etc. touched 4.81 per cent.

Food inflation declined to 3.41 per cent in December in 2020, compared with 9.5 per cent in November.

While supply-side constraints were the primary reason till now, growing demand as economic recovery firms up may not tame core inflation soon.

"On the other hand, favorable base effect, appreciating Indian rupee and any risk of second or third wave of COVID-led slowdown will be a tailwind for CPI inflation".

Sunil Kumar Sinha, principal economist, India Ratings & Research, said the higher core inflation was not driven by demand factors despite the economy recovering from the lows of the first quarter. "On a quarterly basis 3QFY21 core inflation peaked to a eight quarter high of 5.75 per cent". Oils and fats have rarely displayed such a high inflation. Setting an inflation target below the trend may impart a deflationary bias to monetary policy because it will go into overkill relative to what the economy can intrinsically bear in order to achieve the target, said the paper titled "Measuring trend inflation in India".

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