13th October, 2022

Retail inflation

Measured by Consumer Price Index, CPI Inflation rate spiked to 7.41% in September’22, highest levels in 5 months. This is the 9th consecutive time that CPI has come above the Reserve Bank of India’s (RBI) upper margin of 6%. On Subquential basis, retail prices rose 0.57% as against 0.52% monthly.

CPI data is primarily factored by RBI in bi-monthly Monetary policy. However, despite MPC move of hiking the key interst rate by 190 bps, CPI remains above the upper tolerance limit.

This month retail inflation was dominated by food inflation. The consumer Food Price Index showed a month-on month rise to 8.60% from 7.62% in August. Core inflation (food & Energy prices not included) too rose to 5 month high of 6.2% which is above the RBI’s target of 6%. The country is experiencing broad based pricing pressure, as seen by the elevated levels of core inflation.

Industrial Output

Measured by Industrial production (IIP), industrial output contracted by 0.8% in August’22 from a year earlier. This came against the expectation of growth of 1.1%. This raises the concern over domestic economic activity and demand.

However, IIP was higher than pre-pandemic period of August’19.

Manufacturing and Mining sectors are mainly behing the contraction of IIP in August. Manufacturing sector contracted 0.7% and Mining sector saw a decline of 3.9%. The only sector which witnessed a growth of 1.4% is electricity sector.

A strong base might help industrial output increase in coming months, but poor external demand, thighter financial conditions and increased price pressures could hinder it.