Economy

Retail inflation rose to 7.59% in January - the highest since May 2014

Retail inflation rose to 7.59% in January - the highest since May 2014”

The Index of Industrial Production (IIP) had grown at 2.5 percent in December 2018.

Retail inflation rose to 7.59 in January from 7.35% the month before, government data showed on Wednesday. Electricity generation contracted 0.1% compared with a contraction of 5.7% in November 2019. The manufacturing fell 1.2% compared to a growth of 2.9%.

The IIP growth during April-December period of the current fiscal decelerated to 0.5 percent from 4.7 percent expansion in the same period of 2018-19. Data from NSO showed IIP contracted 0.3%, lower than the previous month's 1.8% and 2.5% in the previous yearago period. The inflation rate was at 2.05 per cent in January 2019.

Consumer durables and non-durables recorded growth of (-) 6.7 percent and (-) 3.7 percent respectively.

Industrial output, or factory output, is the closest approximation for measuring the economic activity of the country's business landscape. 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. However, inflation rate for pulses moved up a tad to 16.71 per cent, from 15.44 per cent in December.

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Likewise, the prices of cereals and products grew at a pace of 5.25 per cent. Inflation in eggs was seen at 10.4 percent against 8.7 percent 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. It was higher than 3.6% inflation registered during FY19 (April-January), according to Care Ratings. "The internals of the food inflation are worrying, given a broad-based uptick across categories that tend to be sticky, such as proteins, and a narrower-than-expected reduction in the inflation for vegetable", said Nayar. Inflation in January is well above the Reserve Bank of India's (RBI) medium-term target of 4 per cent for the fourth straight month.

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.

"The timing and magnitude of the next rate cut will depend on how quickly inflation appears to be reverting back towards 4 per cent".

The Reserve Bank of India had kept the key policy rate unchanged earlier this month mainly due to high inflation.

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