Retail Inflation Grows 6.3% on Fuel Hike, Factory Output Up 29.3% on Low Base

Manufacturing grows 34.5 per cent, mining 23.3 per cent, in May, while food inflation stays under 5.6 per cent

Retail Inflation Grows 6.3% on Fuel Hike, Factory Output Up 29.3% on Low Base
Retail Inflation Grows 6.3% on Fuel Hike, Factory Output Up 29.3% on Low Base
PTI - 12 July 2021

India’s retail inflation remained nearly flat at 6.26 per cent in June, compared to 6.3 per cent a month ago, while industrial production surged 29.3 per cent in May but stayed below the pre-Covid period.

Inflation based on the Consumer Price Index (CPI), however, remained above the Reserve Bank of India’s comfort level for the second month in row. The RBI has been mandated by the government to keep retail inflation at 4 per cent with a margin of 2 per cent on either side. According to data released by the National Statistical Office (NSO) on Monday, inflation in the food basket was 5.15 per cent in June compared to 5.01 per cent in May.

The surge in the Index of Industrial Production (IIP) has been mainly because of low-base effect and good performance by manufacturing, mining and power sectors, but remained below the pre-pandemic level. The manufacturing sector, which constitutes 77.63 per cent of the IIP, grew 34.5 per cent in May, according to the NSO data. The mining sector output rose 23.3 per cent in May, while power generation increased 7.5 per cent during the same month.

In May 2021, the IIP stood at 116.6 points compared to 90.2 points in the same month last year. The index was at 135.4 points in May 2019, according to the NSO data. The data showed that the industrial production recovered but was still below the pre-Covid levels reached in May 2019.

“The CPI and IIP numbers were more or less on expected lines. CPI inflation at 6.3 per cent matched our forecast,” said CARE Ratings.

The main push has come from miscellaneous and fuel and light segments with increases of 11.6 per cent in transport and communications and 12.7 per cent in fuel. Food inflation is under control at 5.6 per cent. “Higher fuel costs have been translated into all segments. There is need for the government to start lowering taxes or CPI inflation will increase and put pressure on MPC (Monetary Policy Committee). We expect the CPI inflation to be in the 6 per cent range for two more months,” the agency said.

Factory output had contracted 33.4 per cent in May 2020. “The IIP for May at 29.3 per cent suggests the supply chains have adopted over the last year to dampen the impact of second wave. This points to a robust first-quarter considering the high frequency parameters for June are also positive,” Shravan Shetty, MD of Primus Partners, said.

Industrial production had plunged 18.7 per cent in March last year following the Covid-19 outbreak and remained in the negative zone till August 2020. With the resumption of economic activities, factory output rose 1 per cent in September. The IIP had grown by 4.5 per cent in October. In November 2020, the factory output fell 1.6 per cent and then entered the positive territory by growing 2.2 per cent in December 2020.

The IIP had recorded a contraction of 0.6 per cent in January and 3.2 per cent in February this year. In March, it grew 24.1 per cent. In April, the NSO held back the release of complete IIP data. The second wave of the pandemic started in the middle of April this year and many states imposed restrictions to curb the spread of coronavirus infections.

“The growth rates over the corresponding previous periods are to be interpreted considering the unusual circumstances on account of the Covid-19 pandemic since March 2020,” the NSO said in a statement.

The manufacturing sector had recorded a contraction of 37.8 per cent in May 2020. Mining sector output fell 20.4 per cent in the same month last year. The electricity generation had declined 14.9 per cent in May 2020. The output of capital goods, which is a barometer of investment, grew 85.3 per cent in May 2021 as against a contraction of 65.9 per cent in the year-ago period.

Consumer durables manufacturing increased 98.2 per cent in the month under review compared to a 70.3 cent decline in May 2020. Consumer non-durable goods production grew 0.8 per cent in May this year where it was a contraction of 9.7 cent in the year-ago period.

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