Retail inflation spikes to 7.59% in January; December IIP at -0.3%

Retail inflation rose sharply to 7.35 per cent in December 2019.

India's retail inflation based on Consumer Price Index (CPI) spiked to 7.59  per cent for the month of January from 7.35 per cent in December, due to costlier food products like vegetables, pulses and protein-rich items, data released by National Statistical Office (NSO) showed on Wednesday. The inflation rate was at 2.05 per cent in January 2019. 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.

Industrial production contracted by 0.3 per cent in December as against 2.5 per cent growth in same month a year ago, weighed by a decline in the manufacturing sector

Electricity generation also dipped 0.1 per cent as against a growth of 4.5 per cent in December 2018.

Mining sector output grew by 5.4 per cent, compared to a contraction of 1 per cent earlier.

The IIP growth during April-December period of the current fiscal decelerated to 0.5 per cent from 4.7 per cent expansion in the same period of 2018-19.

According to the data released by NSO, inflation in the food basket eased to 13.63 per cent from 14.12 per cent in December 2019. Food inflation rate was at (-) 2.17 per cent in January 2019.

During the month, inflation in vegetables improved to 50.19 per cent, as against 60.50 per cent in December 2019.

Likewise, the prices of cereals and products grew at a pace of 5.25 per cent. 

Prices of pulses and related products rose by 16.71 per cent during the month.

"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 inflation for vegetables.

"Moreover, the fairly broad-based rise in the core inflation to 4.1 per cent in January 2020, driven by various services, is a cause for concern," said Aditi Nayar, principal economist, ICRA.

Nayar added that regardless of the level of retail inflation, the stance of the RBI for the monetary policy is likely to be retained as accommodative, for as long as the 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 back towards 4 per cent." Rahul Gupta, head of research (currency), Emkay Global Financial Services, said, "It is the consecutive second month that the CPI has breached upper band of the RBI's inflation target... if inflation continues to hover above 6 per cent, we don't expect the RBI (Reserve Bank of India) to cut interest rate or change its accommodative policy stance," said. 

Onion prices - an important food item in Indian households have been on the rise contributing to a surge in food inflation that has picked up steadily since March 2019.

In its February policy review, the Reserve Bank of India (RBI) maintained status quo, and kept the repo rate unchanged at 5.15 per cent , as inflation outlook remained "highly uncertain"

The central bank has been mandated by the government to contain inflation in the range of 4 per cent, with a margin of 2 per cent on either side.