Affairs : Retail inflation surges to 7.59% in January; industrial growth
contracts 0.3% in December
Finance Minister Nirmala Sitharaman
may have to eat her words, as just a day after she claimed the economy is not
in trouble, the monthly data of food inflation and industrial production, which
was released on Wednesday, indicated that all is not well.
While the rate of retail inflation surged to new high of 7.59 per cent in
January, the rate of industrial growth contracted 0.3 per cent in December as
against a rise in November. The surge in the rate of retail inflation also
poses a real challenge for the monetary policy-makers to find innovative means
like using CRR (cash reserve ratio) through incremental lending, so that more
liquidity can be provided for consumption.
According to data released by the Central Statistical Office (CSO),
all-India inflation rate based on CPI (Consumer Price Index) rose to 7.59 per
cent in January as against 7.35 per cent in December 2019 and 1.97 per cent in
January last year. In the mean time, retail inflation based on CFPI (Consumer
Food Price Index), came down slightly to 13.63 per cent in January, from 14.19
per cent in December.
Vegetables (including onion) and
pulses still contribute in a big way to the rise in inflation, though the rate
of inflation of the former did come come down slightly. Data showed the rate of
inflation of the vegetable group at 50.19 per cent in January, against 60.5 in
December. However, inflation rate for pulses moved up a tad to 16.71 per cent,
from 15.44 per cent in December. Experts feel that with vegetable prices,
especially that of onion, potato and garlic, coming down sharply, there will be
some impact on the overall rate of inflation in the coming months.
Aditi Nayar, Principal Economist with ICRA, said with the further
hardening of the headline CPI inflation, driven by a rise in the core print,
coupled with only a mild decline in the food inflation, which persists in
double-digits, the inflation for January 2020 is entirely unpleasant. “It is
unlikely to materially alter the direction of monetary policy... However,
Wednesday’s data suggests that the pause is likely to be extended further,” she
“The internals of the food inflation are worrying, given a broad-based
up-stick across categories that tend to be sticky, such as proteins, and a
narrower-than-expected reduction in the inflation for vegetables,” she said
The rate of industrial growth based on changes in the Index of Industrial
Production (IIP) showed a contraction of 0.3 per cent in December as against an
expansion of 1.8 per cent in November. The Indices of Industrial Production for
the Mining, Manufacturing and Electricity sectors for the month of December
2019 stood at 120.6, 134.2 and 150.2 respectively, with the corresponding
growth rates of 5.4 per cent, (-) 1.2 per cent and (-) 0.1 per cent as compared
to December 2018.
Rumki Majumdar, Economist at Deloitte India, said the contraction in IIP
in December raises concern over the sustainability of the green shoots in
industrial activities that were visible till last month. The contraction does
not bode well for the overall economy as global headwinds already pose
significant challenges to the overall industries.
“The large outbreak of the coronavirus in China can adversely impact India
as China is one of the largest trading partners. With several factories being
closed down in China temporarily, the electronics and auto industry in India
will likely be hit because of their dependence on Chinese imports of components
and raw materials,” she said.