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Retail inflation spikes to eight-month high of 7.34% in Sep on costlier food items; industrial output drops 8% in Aug

12:39 AM Oct 13, 2020 | PTI

Rising food prices pushed retail inflation to an eight-month high of 7.34 per cent in September, above the RBI's comfort level, while industrial output continued to contract in August, official data showed on Monday.

The heightened retail inflation ahead of the festive season dims chances of a rate cut by the Reserve Bank of India (RBI) to boost growth hit by the coronavirus pandemic and the resultant lockdowns.

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The decline in the Index of Industrial Production (IIP) was 10.8 per cent in July. The contraction in August stood at 8 per cent, as per the latest data.

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Manufacturing sector production registered a decline of 8.6 per cent, while the output of mining and power segments fell 9.8 per cent and 1.8 per cent, respectively.

"It may not be appropriate to compare the IIP in the post pandemic months with the IIP for months preceding the COVID 19 pandemic," the Ministry of Statistics and Programme Implementation said in a statement.

"With the gradual relaxation of restrictions, there has been a relative improvement in the economic activities by varying degrees as well as in data reporting," it added.

The Consumer Price Index (CPI)-based inflation was 6.69 per cent in August and 3.99 per cent in September 2019. The previous high in CPI was witnessed at 7.59 per cent in January 2020.

According to the CPI data released by the National Statistical Office (NSO), the Consumer Food Price Index (CFPI) crossed the double-digit mark and was at 10.68 per cent in September. It stood at 9.05 per cent in the previous month.

Inflation in the vegetable segment was 20.73 per cent in September, significantly up from 11.41 per cent in the preceding month. Similarly, the rate of price rise in fruits was high over August.

Icra's economist Aditi Nayar said the CPI inflation hardened beyond expectations in September.

"Even though the high food inflation will eventually prove to be transient, with the favourable base effect and Kharif arrivals to soon initiate a downward trajectory, the average inflation figures for FY2021 as well as H2 FY2021 are likely to be uncomfortably high," she said.

Suman Chowdhury, Chief Analytical Officer, Acuite Ratings and Research, said inflation print has come contrary to market expectations that unlocking of the economy and easing of supply constraints will lead to easing of food prices.

"Clearly, the supply constraints continue to exist despite a favourable monsoon and good agricultural production...

"Our concerns on the threat of stagflation appear to be getting stronger and while the RBI has communicated its decision on continuing with an accommodative environment well into next fiscal, such increasing levels of inflation will clearly be a concern for policymakers," Chowdhury said.

The government has tasked the RBI to keep the retail inflation at 4 per cent, with a margin of 2 per cent on either side. The inflation has been hovering above 4 per cent since October 2019. The RBI factors in the retail inflation while deciding the monetary policy.

Last week, while announcing the monetary policy, RBI Governor Shaktikanta Das had said retail inflation is expected to remain close to the targeted level by the last quarter of this fiscal.

Commenting on the factory output numbers, Nish Bhatt, Founder and CEO, Millwood Kane International, said industrial activity will take some time to fully recover and be on the growth path, which will depend on the quantum of unlocking and demand pick up for industrial goods.

Nikhil Gupta, Economist - Institutional Equities, Motilal Oswal Financial Services, said: "Separately, IIP posted a fall of 8 per cent YoY in Aug'20, in line with the market consensus but lower than our expectation of (-) 10 per cent. All components posted slower decline in August'20 vis-a-vis the previous month." Earlier in the day, Finance Minister Nirmala Sitharaman announced a Rs 73,000 crore package, including advance payment of a part of wages to central government employees and cash in lieu of LTC, to stimulate consumer demand and investment in the economy.

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