New Delhi: With an unprecedented spike in food prices as well other daily used items, retail inflation in the country rose to 5.54 per cent in November from 4.62 per cent in October, breaching the RBI’s comfort zone.
The industrial production, however, has contracted for the third consecutive month in October by 3.8 per cent, mainly due to output fall in manufacturing, mining and electricity sectors, according to the government data released on Thursday.
It has been observed that unexpected spike in food prices — especially onions — in November has become the main driver for surging the retail inflation, which is measured by the Consumer Price Index or CPI.
Food inflation, which is a gauge to measure changes in kitchen budgets, grew by 10.01 per cent in November as against 7.89 per cent in October. Inflation in cereals and products stood at 3.71 per cent as against 2.16 per cent a month ago, the data said. “Vegetables inflation for November also stood at 36 per cent against 26 per cent in October, while pulses and products recorded an inflation of 13.94 per cent in the same month as against 11.72 per cent in previous month,” it added.
In its December policy review, the Reserve Bank of India (RBI) maintained status quo, for the first time this year on higher inflation expectations.
However, the continued decline in industrial production could force the Reserve Bank of India to take a difficult decision on whether to focus on controlling inflation by keepin interest rates steady or to boost the industrial growth by slashing interest rates.
India’s industrial output continued to contract in October, indicating that the fiscal and monitory steps taken so far to reverse an economic slowdown is yet to make a big impact on the ground.
“Industrial output contracted to 3.8 per cent in October after contracting 4.3 per cent in September, 1.4 per cent in August this year, while it grew at 4.9 per cent in July, and in contrast it grew to 8.4 per cent in September last year,” the data said.
In view of such continuous contraction, the government has so far announced a slew of measures to support the automobile industry, exporters, non-bank lenders and housing financiers in addition to announcing a sharp corporate tax rate cut for domestic companies not availing of any tax breaks and to new manufacturing companies.
However, economists believe that inflation is likely to soften over the next two months, while industrial output is still better than the expected figure in the October month. “Core inflation remains benign and trending downwards, while the IIP number, although in negative, is better than expected given that in October 2019, there are several holidays when factories were shut. This reflects a reasonably good festive sales and perhaps clearing of inventories,” said Sujan Hajra, chief economist and executive director, Anand Rathi Shares & Stock Brokers.
“While large part of food inflation is likely to soften over the next two months, we expect the trend inflation to remain elevated. Average inflation in 2020 at 4-4.5 per cent range would be much higher than in 2019. With the likely bottoming of growth and elevated inflation as well as concerns on large fiscal slippages, the policy rate may remain in hold in FY20,” added Hajra.
However, Rahul Gupta, head of research, currency, Emkay Global Finan-cial Services, said, “At this month’s policy, the RBI refrained from cutting rates due to uptick in CPI despite slow growth. If the trend continues, the RBI may continue to maintain a pause in February.”