Costlier food keeps retail inflation elevated in Feb; Jan IIP growth eases

High food prices kept the retail inflation rate above 5 per cent in February while growth in industrial production eased in January, led by deceleration in the growth of manufacturing output.

The data released by the National Statistical Office showed the consumer price index-based (CPI-based) inflation rate eased slightly to 5.09 per cent in February from 5.10 per cent in January as moderation in the core inflation rate (excluding food and oil) to 3.3 per cent was nullified by a rise in the food inflation rate to 8.7 per cent from 8.3 per cent in preceding month.

On the other hand, growth in the index of industrial production (IIP) eased to 3.8 per cent in January following an upwardly revised 4.2 per cent growth in the preceding month, as expansion in manufacturing sector eased to 3.2 per cent.

 

However, growth in mining (5.9 per cent) and electricity (5.6 per cent) accelerated during the month.

Among food items, prices of vegetables (30.25 per cent) and protein-rich items like meat and fish (5.21 per cent) and eggs (10.69 per cent) accelerated.

Prices of other food items like cereals (7.60 per cent), pulses (18.9 per cent), sugar (7.48 per cent), and spices (13.51 per cent) remained high despite deceleration during the month.

Madan Sabnavis, chief economist, Bank of Baroda, said inflation in February was purely a food-driven phenomenon, which would continue to pressure prices in the coming months.

“Vegetable inflation is the highest with onion prices going up again [and it] will continue to exhibit such tendencies. Besides, horticulture output this year is expected to be lower than last year,” he added.

Echoing similar views, Rajani Sinha, chief economist at CARE Ratings, said high inflation in specific food categories posed a risk of potentially broadening price pressures and de-anchoring inflationary expectations.

“Having said that, the outlook for food inflation has improved over the past couple of months owing to marginally increased overall acreage in rabi sowing compared to the previous year. Government initiatives on the supply side, such as the open market sale scheme (OMSS) and export restrictions, will further aid in cooling food prices. It is noteworthy, however, that reservoir levels, particularly in eastern and southern India, persist at low levels. Consequently, the forthcoming monsoon in FY25 holds significant importance for the trajectory of food inflation,” she added.

Last month, the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5 per cent for the sixth consecutive time. It retained the inflation forecast for 2023-24 at 5.4 per cent, while for the March quarter the projection was lowered to 5 per cent from 5.2 per cent estimated earlier.

“The inflation trajectory, going forward, would be shaped by the outlook on food inflation, about which there is considerable uncertainty. Adverse weather events remain the primary risk with implications for the rabi crop. Increasing geopolitical tensions are leading to supply chain disruptions and price volatility in key commodities, particularly crude oil,” RBI Governor Shaktikanta Das said in his post-MPC statement.

In the IIP, only eight of the 23 manufacturing industries, which include tobacco, apparel, food products, paper, and computer, witnessed a contraction in January. In the use-based segment, while capital goods (4.1 per cent), intermediate goods (4.8 per cent), infrastructure goods (4.6 per cent) and consumer durables (10.9 per cent) saw accelerated growth during the month, primary goods (2.9 per cent) saw sequential moderation and consumer non-durables (-0.3 per cent) contracted.

“The contraction in consumer non-durables continues to reflect the weakness in consumption and it is of concern that it has remained feeble in the last few months. With CPI inflation moderating, it would be interesting to see if that gets reflected in improved consumption demand in the coming quarters,” Sinha added.