Inflation: industrial growth in the 7-month low; retail inflation increases

Industrial growth moderated sharply to a seven-month low of 3.1% in September from more than 12% in August, hit by the strong monsoon in the month that affected economic activity, a shortage of components that affected the automotive sector and the decreasing base effect that had driven growth in recent months.

The consumer price index published separately (CPI) showed retail inflation rose to 4.48% in October from 4.35% in September, but remained within the Reserve Bank of India’s (RBI) target range of 2-6%, which will allow it to maintain monetary policy to support the increase.

Industrial production grew 23.5% in the first half of fiscal year 22, helped by the strong base effect of the 20.8% contraction in the same period of the previous year. The waning base effect has highlighted the weakness of the industrial recovery. Mining production increased 8.6% in September, while manufacturing increased 2.7%. Electricity generation grew 0.9%. On a monthly basis, industrial growth fell 2.6%, mining production fell 8.4% and electricity generation was 11% lower.

“The main setbacks were in the automotive and electronics area, where growth was negative,” said Madan Sabnavis, chief economist at CARE Ratings.

The revival of industrial production will remain a challenge in the short term, India Ratings said in a report. The moderate industrial growth figures are in stark contrast to strong retail demand in the holiday season. “While high-frequency indicators such as the record GST e-way invoice generation are encouraging, holiday season trends were somewhat divergent across pricing, and supply-side issues affecting the auto sector. they continued to act as a brake, “said ICRA chief economist Aditi. Nayar.

‘Growth can remain moderate’

“Overall, we expect the high base to keep IIP growth mediocre below 2.5% in the month just ended,” Nayar said.

Production of capital goods grew 1.3% in September, while that of consumer durables contracted 2%, reflecting the impact of the chip shortage. The production of non-durable consumer goods fell 0.5% in September compared to the previous year.

“The seasonal setbacks seen so far are expected to decline in the coming months and lead to better industrial performance in the second half,” said CARE Ratings’ Sabnavis, but added that growth may remain subdued due to base normalization. .

Inflation goes up

Higher fuel and food prices caused inflation to rise marginally in October. Food inflation accelerated 0.85% in October from 0.68% in September, while fuel inflation accelerated 14.35% from 13.6% the previous month.

“CPI inflation reversed course in October. The reversal is being led by perishable food prices, with fuel and some rise in core inflation visible,” said Rahul Bajoria, Barclays chief economist for India.

Consumer inflation has fallen from a high of 6.3% in June, giving the RBI room to keep interest rates low to support growth.

Inflation is expected to accelerate from November. According to ICRA’s Nayar, the reactivation of demand is pushing producers in some sectors to overcome input price pressures, bringing core inflation to 5.8% in October.

“As the base effect wears off and pressures related to coal, metals and logistics costs come to the fore, we expect CPI inflation to return to an uncomfortable 5-6% range in December-March of the fiscal year. 22, “said Nayar.

However, the excise tax cuts on fuels will mitigate some of the price pressures and keep inflation within the target rate.

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