Economy

Inflation cooldown comes as a surprise; industrial output disappoints

Inflation cooldown comes as a surprise; industrial output disappoints”

Separately, retail inflation decelerated to 4.59% in December from 6.93% a month ago, as vegetable prices fell 10.4% from a year ago with prices of onion easing substantially. This is the lowest point in retail inflation since March previous year, when it was pegged at 5.84 per cent, marking a return to the comfort range of 2-6 per cent prescribed by the Reserve Bank of India for the first time in nine months. Support from a low base available till October vanished beginning November, which could adversely impact factory output growth for the rest of the fiscal to March. While retail inflation for December came down to within the Reserve Bank of India's (RBI's) medium-term inflation target after eight months, industrial production in November contracted after two months of expansion.

Buoyed by higher gasoline prices, the broader CPI advanced 0.4 per cent from a month earlier and 1.4 per cent from December 2019.

The IIP had grown by 2.1 per cent in November 2019. Analysts in a Reuters poll had predicted inflation of 5.28 per cent. On balance, the wage and inflation numbers are fractionally higher and at a pace of +0.4% m/m, the Fed will quickly hit its 2% target. An accompanying moderation in the inflation rates for meat and fish, eggs and pulses, helped the consumer food price index record its slowest pace of increase in 16 months at 3.4%. "However, core CPI near 5 per cent and rising input costs due to commodity price inflation is a concern that needs to be monitored".

More news: Coronavirus: 604 new cases in Galway & 46 deaths reported today

Food inflation declined to 3.41 per cent in December in 2020, compared with 9.5 per cent in November.

Anagha Deodhar, chief economics, ICICI Securities, said, "This inflation print is sharply lower than our expectation". Major contributors to higher core inflation are health and recreation and amusement, he said. However, this was the only section that saw a decline in prices last month. "Overall, we expect inflation to average between 5-6 per cent in CY21", he further added. "The focus is now being oriented towards supporting the recovery and preserving the solvency of businesses and households", RBI said in a report released on Monday.



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