Factory output powers down in Nov, food fuels inflation in Dec | Mint - Mint

While industrial output growth fell to an eight-month low of 2.4% in November, consumer price index (CPI)-based inflation rose 5.69%, its fastest pace in four months in December, the statistics ministry said.

Though factory output points to a slowdown in manufacturing growth momentum in November, in the April-November period of this fiscal, it expanded 6.4%, a notch above the 5.5% figure in the same time a year ago.

Inflation at elevated levels underlines the central bank’s cautious stance on interest rates, signalling possible measures by the government to curb rising prices.

Retail inflation rose to 5.69% in December, up from 5.55% the previous month, the steepest monthly rise since August 2023. Interestingly, during the April-December 2023 period, the highest monthly retail inflation was reported during December, after July and August, with July reporting the highest inflation rate of 7.4% in 15 months due to a sharp rise in prices of vegetables and other food items such as pulses, spices and cereals.

The high inflation levels earlier had prompted the government to take supply-side measures such as releasing substantial cereal stocks from reserves while proactively managing the imports and exports of pulses to ensure supplies. The government had also restricted exports of rice and sugar to tame inflation.

December CPI inflation remained higher than RBI’s target of 4%, but still within its tolerance range of 2-6% for the fourth consecutive month. In December 2022, retail inflation was reported at 5.7% A Mint poll of 19 economists estimated retail inflation to rise to 5.9% in December.

Food inflation, measured by the consumer food price index, which accounts for nearly half of the overall consumer price basket, rose to 9.53% in December, up from 8.70% in November, 6.61% in October and 6.62% in September.

Meanwhile, factory output measured in terms of the Index of Industrial Production (IIP) rose by 7.6% in November 2022. In November, output in the manufacturing sector rose 1.2% annually, mining 6.8%, and power 5.8%.

Capital goods production, a proxy for fixed investments in the economy, contracted 1.1% annually during November. Alongside, consumer durables production, which highlights consumer sentiment, also contracted 5.4% on an annual basis during the month.

During November, the monthly industrial output growth was the slowest in the April-November 2023 period. Industrial output growth rate, which was at 4.61% in April this fiscal, maintained its momentum and staged double-digit growth in August and October, driven by mining output growth, festive demand for manufactured items and electricity generation, before reporting the lowest growth of the year in November.

“While an unfavourable base resulted in a broad-based growth moderation, month-on-month contraction seen in the electricity and manufacturing sectors further constrained the overall IIP growth," said Rajani Sinha, chief economist at CareEdge.

“The sequential increase (in retail inflation) was led by food inflation, which increased to a four-month high of 9.53%. Food inflation was led by fruits, vegetables, pulses and spices. The good news on inflation in general and food inflation in particular is that after a gap of 15 months, cereals and product inflation declined to single-digit and fifth consecutive month of decline," India Ratings said in a statement. “Core inflation has declined to 48 months low of 3.89% in December 2023. Declining core inflation at a time of strong economic growth is a conundrum," it added.

Data released in November showed the Indian economy shot past expectations to report an impressive 7.6% growth in the September quarter, riding an expansion in the manufacturing sector, leading to the Reserve Bank India (RBI) revising its FY24 growth forecast to 7% from an earlier estimate of 6.5%.

The government’s first advance estimates, released last month, showed India’s growth at 7.3% in FY24, aided by sustained investment growth and robust output in manufacturing, construction and certain services.

In the first advance estimates, the finance ministry said strong domestic consumption and investment drove GDP growth in the first half of FY24.

Private Final Consumption Expenditure (PFCE) registered a growth of 4.5%, with its share in GDP increasing to 60.4%, the highest in H1 since FY12, barring the pandemic year of FY21.

During December, inflation in vegetables and pulses stood at 27.64% and 20.73% respectively, sharply higher than the 17.70% and 20.23% recorded during November.

‘Food and beverage’ inflation stood at 8.70% in December, up from 8.02% in November, and from 6.24% in October.

Among states, Delhi and Jammu & Kashmir reported the slowest retail inflation at 2.95% and 4.15%, respectively, while Odisha (8.73%), Gujarat (7.07%) and Haryana (6.72%) recorded the fastest price rice.

A slowdown in manufacturing activities in India comes at a time when the country faces challenges in the form of slowing global growth and consumption. Indian exports have been impacted, resulting in muted export growth and a high trade deficit in recent months.

However, international agencies and the RBI have raised their FY24 growth projection for India on the back of stronger-than-expected consumption.

The International Monetary Fund (IMF) and the World Bank expect the Indian economy to grow at 6.3% in FY24.

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Factory output powers down in Nov, food fuels inflation in Dec | Mint - Mint

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