Retail inflation jumps to 7.59%, index of industrial production drops

The high retail inflation would make economic revival even more difficult

At the aggregate level, households’ expectations on price changes are aligned with those of food products and cost of services. Photo: iStock

Serving a blow to the already sluggish economy, the country’s retail inflation jumped to an over five-and-a-half-year high of 7.59% in January.

(Retail inflation is the increase in prices of products or commodities pitched against a base price. In India, retail inflation is linked to the Consumer Price Index (CPI) which is managed by the Union Ministry of Statistics).

IIP dips

The high retail inflation would make economic revival even more difficult. To add to this, the manufacturing sector too declined with the index of industrial production shrinking to 0.3% in December from the provisional growth of 1.8% a month ago.

The Consumer Price Index (CPI)-based inflation was 7.35% in December 2019. It was 1.97% in January 2019. The earlier high was in May 2014 when the CPI-based inflation was 8.33%.

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The overall food inflation during January this year stood at 13.63%, slightly lower than 14.19% in the previous month, as per data put out by the National Statistical Office under the Ministry of Statistics and Programme Implementation.

The food inflation in January 2020 was 13.63%, compared with (-)2.24% in January 2019. However, it is down from 14.19% in December.

Inflation in vegetables spurt to 50.19% in January this year, while that for pulses and products, it rose to 16.71%.

Among protein-rich items, prices of meat and fish went up by 10.50% during the month, while egg prices were higher by 10.41% against the year-ago period.

Food and beverages

The food and beverages category showed an inflation of 11.79%, according to the data. Housing turned costlier by 4.20% in January 2020, while for fuel and light, the inflation print was 3.66%.

“The internals of the food inflation are worrying, given a broad-based uptick across categories that tend to be sticky, such as proteins, and a narrower-than-expected reduction in inflation for vegetables.

Related news | Retail inflation at 5-year high of 7.35% in Dec, crosses RBI’s safe level

“Moreover, the fairly broad-based rise in the core inflation to 4.1% in January 2020, driven by various services, is a cause for concern,” said Aditi Nayar, principal economist, ICRA.

Nayar added that regardless of the level of retail inflation, the stance of the RBI for the monetary policy is likely to be retained as accommodative.

The timing and magnitude of the next rate cut will depend on how quickly inflation appears to be reverting back towards 4%. Rahul Gupta, head of research (currency), Emkay Global Financial Services, said, “It is the consecutive second month that the CPI has breached upper band of the RBI’s inflation target… if inflation continues to hover above 6%, we don’t expect the RBI to cut interest rate or change its accommodative policy stance,” said.

‘Power drop’

Electricity generation also dipped 0.1% as against a growth of 4.5% in December 2018, a+s per the data. The mining sector output saw a growth of 5.4%, compared to a dip of one per cent earlier.

The IIP growth during April-December period of the current fiscal decelerated to 0.5% from 4.7% expansion in the same period of 2018-19.

Finance Minister Nirmala Sitharaman had used seven indicators including the IIP to argue that the Indian economy was ‘doing fine.’ She had said that ‘green shoots’ were appearing and the future looked bright. The International Monetary Fund but had predicted earlier that the growth was expected to get back to 5.8% only by 2020-21.

Related news | Too early and little data to indicate economic revival yet

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