January industrial output expands 2%; retail inflation in February eases

Source: The Economic Times, Mar 13, 2020

NEW DELHI: Factory output growth improved in January after a mild decline in December while retail inflation eased in February, offering the Reserve Bank of India (RBI) the option of an immediate rate cut to counter the disruption caused by the Covid-19 pandemic.

Data released by the statistics office on Thursday showed industrial output grew 2% in January against an upwardly revised 0.07% rise in December.

The simultaneously released Consumer Price Index (CPI) showed retail inflation slowing to 6.58% in February from 7.59% in January due to softer food inflation. “With domestic and global growth expected to face downside risks from the spread of Covid-19 and deflationary forces emerging, we see room for up to 50 bps of rate cut by the MPC (monetary policy committee), with any further easing contingent on the evolving growth environment,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.

The next policy review is scheduled for the first week of April.

The central bank said on Thursday it was prepared to take all necessary measures, raising the prospect of an early monetary review aimed at cutting rates, said experts.

The US Federal Reserve and other central banks have already announced measures to support national economies amid forecasts that global growth could slow to below 2% from 2.9% in 2019. OECD has lowered the global growth scenaro to 1.5% from 3% in a worst-case scenario if the spread of the virus is not contained.
The US Fed’s rate cut has increased the chances of a similar cut in India, said Indranil Pan, chief economist at IDFC First Bank. “A 35-40 basis point cut may not boost credit growth immediately but will arrest the negativity that has sunk in because of the coronavirus,” he said. A basis point is 0.01percentage point.

Food inflation fell to 10.81% from 13.63% in January and that in vegetables was 31.61% compared with 50.19% in January. Among protein-rich items, meat and fish inflation was 10.20% during the month, while that for eggs was 7.28%.

Uncertain Growth
Independent economists expect a further dip in industrial production as global trade gets hit due to the coronavirus outbreak. “There is uncertainty on the production side and automobile sales are showing that,” said Pan.

“Given that January was not the period where the Covid-19 was active in other parts of the world, the impact on supply chains will be felt more in February and March,” said Madan Sabnavis, chief economist of CARE Ratings.

Manufacturing output rose 1.5% compared with 1.3% growth in the same month a year ago while electricity generation increased 3.1% in January against 0.9% growth in the year earlier.

April-January industrial growth was 0.5% against 4.4% in the yearearlier period. December factory output swung from a 0.3% decline earlier to a 0.07% increase. Mining output grew 4.4%.

At the use-based level, the steepest contraction was in the capital goods sector at 4.3% followed by 4% in consumer durables and 0.3% in consumer non-durables. Both consumer durable and nondurables have witnessed negative growth.

Costly onion, potato push WPI inflation to 3.1% in Jan

Source: The Hindu Business Line, Feb 14, 2019

New Delhi: Wholesale Price Index (WPI)-based inflation rose to 3.1 per cent in January, against 2.76 per cent in the same month last year. The latest WPI print is also higher than the 2.59 per cent reading recorded in December 2019.

Build-up inflation rate in the financial year so far is 2.50 per cent compared to a build-up rate of 2.49 per cent in the corresponding period of the previous year, official data showed on Friday.

A surge in onion and potato prices lifted food articles inflation to 11.51 per cent for the month against 2.41 per cent in same month last year. Food articles inflation in January was, however, lower than 13.2 per cent in December 2019.

Non-food articles saw a three-fold jump to 7.8 per cent in January from 2.32 per cent in the year ago period.

Among the food articles, vegetables prices surged 52.72 per cent mainly on account of spike in price of onion, which saw 293 per cent jump, followed by potato at 37.34 per cent.

It may be recalled that earlier this week retail inflation for January came in at six-year high of 7.59 per cent, much above the RBI comfort zone and primarily due to rising vegetable and food prices.

Manufactured products inflation for January came in at 0.34 per cent against 2.79 per cent in same month last year.

The disinflation in the core WPI narrowed to 1.0 per cent in January from 1.5 per cent in the previous month.

Experts’ take

Aditi Nayar, Principal Economist, ICRA Ltd, said even with further correction anticipated in vegetable prices in February , the primary food inflation may persist in double-digits in that month.

“Higher customs duties would push up inflation related to imports to some extent going forward. However, the impact of the spread of the coronavirus on risk sentiment and commodity prices, including crude oil, is expected to exert a substantial moderation on the wholesale inflation in February,” Nayar said. Madan Sabnavis, Chief Economist, CARE Ratings, said: “WPI came at 3.1 per cent which was our forecast too. The positive increase in inflation for manufactured goods is a good sign for industry which has been confronted with negative inflation so far which means loss of pricing power. The moderation in primary inflation is not really very significant as both components — food and non-food are still high. Fuel inflation, however, should come down in the next two months.”

Economists eye silver lining in India’s rising rural inflation numbers

Source: The Economic Times, Feb 13, 2019

MUMBAI: India’s rural inflation rate surged faster than urban inflation for the first time in 19 months in January, and economists are optimistic that signals something the country desperately needs – a revival in demand in the rural economy.

Around two-thirds of India’s population depends on the rural sector with agriculture accounting for near 15% of India’s $2.8 trillion economy, and rising inflation suggests pricing power is returning to the hands of the farmers, say economists.

“This augurs well for farmers’ cash flows in the coming months. I expect early signs of demand revival to emerge from the rural belts, going ahead,” said Rupa Rege Nitsure, chief economist at L&T Financial Holdings. Read the rest of this entry »

January retail inflation at 56-month high of 7.59%

Source: Business Standard, Feb 13, 2019

New Delhi: A slim revival in industrial production in November had prompted Finance Minister Nirmala Sitharaman to see green shoots of recovery. But this has turned out to be a temporary blip — factory output has again contracted by 0.3 per cent in December.

The retail inflation rate, however, rose to a 68-month high of 7.59 per cent in January, even as the rate of price rise in food items declined. However, the food inflation rate remained elevated at 13.63 per cent. The consumer price index (CPI)-based inflation rate stood at 7.35 per cent; food inflation was at 14.19 per cent in December.

The index of industrial production (IIP) fell from a growth rate of 1.8 per cent, as the manufacturing sector slipped into negative territory again. Electricity generation continued to decline at a reduced rate in December. It shrank 0.1 per cent in December from 5 per cent in November. Manufacturing declined 1.2 per cent in December from a growth rate of 2.7 per cent in the previous month.

It was only mining which redeemed IIP numbers, rising by 5.4 per cent, against 1.7 per cent in November.

Before November, IIP had contracted three months on the trot.

Capital goods continued to decline at an accelerated rate in December. Production of these items fell 18 per cent in the month, from a contraction of 8.6 per cent in the previous month. This will impact industrial production in the coming months.

Madan Sabnavis, chief economist at CARE Ratings, said this is a reflection of low investment activity due to low capacity utilisation (70 per cent in the second quarter of 2019-20, according to the Reserve Bank of India, or RBI) and banks’ reluctance to lend.

Consumer goods — both fast-moving and durables — contracted. Sabnavis said this reflects low demand due to stagnant incomes and torpid job creation, further activated by high food inflation.

On Tuesday, Sitharaman had said ‘green shoots’ were visible in some sectors, including industrial production.

Sunil Kumar Sinha, principal economist at India Ratings and Research, said the turnaround in industrial production is still not visible and the wait for green shoots is getting longer.

The inflation rate in vegetables came down from 60 per cent in December, but it still stood at 50 per cent in January.

Pulses saw the inflation rate rising to 16.71 per cent in January, from 15.44 per cent in December. In its monetary policy statement, the RBI had pointed to rising pressure on inflation rate of pulses.

The core inflation, which is non-food and non-fuel one, rose to 4.1 per cent in January from 3.7% in December.

“Core inflation, driven by various services, is a cause for concern,” said Aditi Nayar, principal economist at ICRA. She said regardless of the level of CPI inflation, the stance of the monetary policy is likely to be retained as ‘accommodative’, for as long as the monetary policy committee (MPC) considers the output gap to be negative.

“The timing and magnitude of the next rate cut will depend on how quickly inflation appears to be reverting towards 4 per cent,” said Nayar. The MPC has pegged average CPI inflation in the fourth quarter at 6.5 per cent. For this to fructify, inflation must decline in the next two months.

Budget takes  some heat off RBI on growth, inflation back in spotlight

Source: LiveMint.com, Feb 04, 2019

It is back to inflation targeting for the Reserve Bank of India’s (RBI’s) rate-setting committee, when its six members meet to vote on policy rates this week.

Analysts expect a pause in rate cuts from the central bank, and they would be right, considering that the Union budget did precious little to move the needle anywhere for monetary policy.

The last reading on headline retail inflation for the central bank was an unflattering 7.35% for December.

The mandate for RBI is to keep the headline number within the 2-6% band and the central bank has ostensibly targeted the mid-point of 4% so far. With inflation breaching the upper bound, monetary policy is hard pressed to not ignore it.

The Union budget is a key input for monetary policy as the government’s finances have a bearing on growth, inflation and, more importantly, interest rates.

The revised estimates for the current year from the budget indicate that the government has refrained from heavy spending. The slippage in fiscal deficit of 0.5% of gross domestic product (GDP) is largely due to lower tax revenue growth, rather than an increase in spending. The increase in spending for FY21, too, is at a modest 13%, with an indication of bringing down the fiscal deficit to 3.5% of GDP. Ergo, some analysts have termed it a contractionary budget.

Even so, the government has allocated resources to boost the rural sector, reiterated its commitment to spend on infrastructure and also offered to leave more cash in the hands of the people through lower income-tax rates. The disappointing factor is that all these measures have riders, which the market didn’t like.

Radhika Rao, senior vice president and economist at DBS Bank India Ltd, said this takes at least some of the heat off the monetary policy on growth. “With fiscal policy taking a growth-supportive role, on the back of monetary policy being ahead of the curve last year, the calibrated policy mix should bode well for growth,” she wrote in a note. Rao expected RBI to remain on an extended pause but keep the stance accommodative.

A commitment to fiscal prudence, a realistic assumption about future growth and steps to attract more foreign capital to the bond market are all helpful measures from the budget for the central bank.

But it is not as linear as that. Bond yields may have eased after the budget, but the over-reliance on small savings by the government risks keeping interest rates from falling. The borrowing from national small savings fund was revised to ₹2.4 trillion in the budget for the current fiscal year. That is nearly double the previous estimate. For FY21, too, the government is keeping a similar borrowing target. As the government continues to corner household savings, banks won’t be able to cut deposit rates and, hence, lending rates.

Wholesale inflation tames to 0.58 per cent

Source: The Hindu Business Line, Dec 16, 2019

New Delhi: Wholesale inflation fell to 0.58 per cent in November 2019, down from 4.47 per cent in November 2018. Sequentially, wholesale inflation reported an increase, rising from 0.16 per cent in October 2019, according to a statement by the Ministry of Commerce and Industry.

The blow for consumers was softened by cheaper LPG and Crude Petroleum prices, but they had to shell out much more for expensive onions, potatoes, vegetables and cereals during November 2019.

An official statement said that the Wholesale Price Index (WPI) for all commodities for November 2019 rose by 0.10 per cent to 122.3 from 122.2 for October 2019.

In the overall index, the highest increase was reported in onion prices. The index representing onion inflation rose to 172.30 per cent in November 2019, compared to November 2018. During November 2018, the index had reported a decline of 47.60 per cent compared to onion prices in November 2017.

Since onions represent just 0.16 per cent of the WPI, the spurt could not reflect much in the overall wholesale inflation.

Read the rest of this entry »

November retail inflation reaches 5.54%, at 3-year high

Source: The Economic Times, Dec 12, 2019

India’s retail inflation in November rose to 5.54% from 4.62% in October, highest since 2016 and over RBI’s medium-term target of 4%.

Higher food prices contributed to the spike. Food price inflation (Rural and urban) climbed 10.01% in November.

During the month, inflation in vegetables shot up to 35.99 per cent, as against 26.10 per cent in October.

Likewise, the prices of cereals and eggs grew at a faster pace of 3.71 per cent. Prices of meat and fish rose by 9.38 per cent annually and of eggs by 6.2 per cent in November.

The share of food in headline CPI in India is at 45.9%. The rise in inflation is also due to higher food prices.

Inflation based on Consumer Price Index (CPI) was 4.62 per cent in October, and 2.33 per cent in November 2018.

Prices of onions, in particular, shot up by 45.3 per cent in September and further by 19.6 per cent in October.

Retail food prices, which make up almost half of the inflation basket, increased to 10.01% in November, compared with a 7.89 % rise in October.

Core inflation remained unchanged from October at 3.5%

The MPC in its August meeting had forecast inflation for the second half at 3.5-3.7%, which was retained in October and come December, it goes to 5.7-4.1%.

Read the rest of this entry »