Retail inflation dips to 25 month low of 4.25% in May; IIP growth inches up to 4.2% in April

• Retail inflation has been within the RBI's comfort zone for three months now.
  
• The earliest time for a rate action provided inflation is in line with the RBI’s estimate would be February, said Madan Sabnavis, chief economist at Bank of Baroda.
  
• India's IIP growth rose to 4.2% in April from 1.7% in March 2023, due to good performance by the manufacturing and mining sectors.
  

Retail inflation declined to a 25-month low of 4.25% in May mainly on account of softening prices of food and fuel items. Inflation based on the Consumer Price Index (CPI) stood at 4.7% in April and 7.04% in May 2022.

This is the fourth straight month when retail inflation has declined and the third month in a row that Consumer Price Index (CPI) based inflation remained within the RBI's comfort zone of below 6 per cent.

At 4.25%, retail inflation is the lowest since April 2021 when it was 4.23%.

The government has tasked the central bank to ensure retail inflation remains at 4%with a margin of 2% on either side. Inflation for the food basket was at 2.91% in May, lower than 3.84% in April. The food basket accounts for nearly half of the CPI.

Madan Sabnavis, the chief economist at Bank of Baroda said that this fall is mainly driven by oil and vegetables where inflation fell by 16% and and 8% respectively. “There are pressure points on cereals (12.7%) and pulses (6.6%) besides milk and spices. The monsoon forecasts and performance will hold clue to future movements in these indices. Pulses will be more vulnerable in this context,” he added.

Inflation in fuel and light eased to 4.64%, from 5.52% in April.

Last week, the Reserve Bank kept policy rates unchanged at 6.5% and projected retail inflation for the current fiscal to average at 5.1 per cent, with June quarter inflation pegged at 4.6%.

“Given uncertainty on monsoon, RBI will be watchful on inflation and policy stance. We believe that the earliest time for a rate action provided inflation is in line with the RBI’s estimate would be February,” Sabnavis said.

Industrial production grows 4.2% in April

India's industrial production growth rose to 4.2% in April from 1.7% in March 2023, mainly due to good performance by the manufacturing and mining sectors, according to official data released on Monday. The factory output growth measured in terms of the Index of Industrial Production (IIP) stood at 6.7% in April 2022.

As per the IIP data released by the National Statistical Office (NSO), the manufacturing sector's output grew 4.9% in April 2023 against a 5.6% expansion a year ago.

Power generation declined 1.1% in April 2023 compared to a growth of 11.8%.

Mining output, however, rose by 5.1% during the month under review against a growth of 8.4% in the year-ago period.

As per use-based classification, the capital goods segment recorded a 6.2% growth in April compared to a 12% expansion a year ago.

“We need to wait and watch on the sustainability of these numbers to feel reassured about growth. But such numbers will provide additional tools for taking monetary policy decisions as it does look like that growth is not being hampered,” said Sabnavis.

Consumer durables output during the month declined by 3.5% against a 7.2% growth a year ago. As per an analysis by Bank of Baroda economists, this is a surprise, as it generally picks up during the post-rabi harvest season.

Consumer non-durable goods output grew 10.7% against a contraction of 0.8% a year earlier. Infrastructure/construction goods posted a growth of 12.8% compared to a 4% expansion in the same period a year ago.

The data also showed that the output of primary goods logged 1.9% growth in the month against 10.3% in the year-ago period. The intermediate goods output in April grew by 0.8% compared to a 7.1% growth during the corresponding month last year.

For fiscal 2022-23, the growth in IIP works out to be 5.2%, down from 11.4% in the preceding year.

(With PTI inputs)