Retail inflation jumps to 5.52% in March; factory output contracts 3.6% in February

Retail inflation jumps to 5.52% in March; factory output contracts 3.6% in February

The manufacturing sector — which constitutes 77.63 percent of the IIP — declined by 3.7 percent in February 2021, as per NSO data

New Delhi: In a double whammy for the economy, retail inflation jumped to a four-month high of 5.52 percent in March while industrial output contracted for the second month in a row, falling 3.6 percent in February — reinforcing concerns over the pace of GDP recovery amid a fresh wave of coronavirus infections.

Contraction in factory output, measured as the Index of Industrial Production or IIP, in February came on the back of a 0.9 percent decline in January, according to government data released on Monday.

With both mining and manufacturing contracting in February, the lack of momentum in industrial activity along with fresh COVID-19 lockdowns in certain states has cast its shadow on the likelihood of meaningful positive GDP growth in the fourth quarter of the 2020-21 fiscal.

Policymakers had expected positive GDP growth in January-March to restrict the annual FY21 contraction to 7.5-8 percent.

Higher food inflation and spurt in fuel prices led the consumer price index (CPI) based retail inflation rising to 5.52 percent in March, from 5.03 percent in the previous month.

Core inflation jumped to a 29-month high of 5.96 percent in March 2021 (3.95 percent in March 2020 and 5.88 percent in February 2021).

Though the contraction in IIP growth in February could be attributed to the base effect (February 2020 growth was at a 16-month high), there was a worrisome sequential drop in the manufacturing output.

See also  Sensex rises advances 100 points in early trade; Nifty above 15,200; HDFC, Reliance Industries lead gains-Business News , Technomiz

This comes as India reported yet another peak in daily COVID-19 cases with 1,68,912 new cases, the highest single-day rise since the pandemic began, with its total tally pushing past 1.35 crore.

Some states such as Maharashtra and Delhi have already imposed partial lockdowns to curb its spread.

Commenting on the macroeconomic data, India Ratings and Research said the uptick witnessed in September and October last year was more due to a combination of festive and pent-up demand and India is still far from witnessing a sustained recovery.

“Growth pattern of primary and intermediate goods, two leading indicators of industrial production are pointing towards a lackluster industrial performance in short- to medium-run,” it said. “This also means government and RBI will have to continue to support the demand.”

Inflation, it said, is expected to remain sticky, leading to the Reserve Bank of India (RBI) continuing with its accommodative policy stance throughout the 2021-22 fiscal.

Suman Chowdhury, Chief Analytical Officer, Acuit Ratings & Research, said any further increase in prices due to lockdown-driven potential supply constraints, continued depreciation of the rupee and continuing rise in commodity prices will remain a risk factor and may pose a policy challenge for RBI.

“However, the inflation levels are unlikely to trigger any action from RBI at this point given the increased risks of fresh lockdowns from the second COVID wave and the rising growth concerns.”

According to data released by the National Statistical Office (NSO), the rate of price rise in the food basket accelerated to 4.94 percent in March, as against 3.87 percent in the preceding month.

See also  Free Visa: Announcement of help to tourism sector, government will give free visa to 5 lakh tourists, Announcement of help to tourism sector, government will give free visa to 5 lakh tourists

Inflation in the ‘fuel and light’ category was 4.50 percent during the month vis-a-vis 3.53 percent in February.

Earlier this month, the RBI had projected the retail inflation at 5 percent in the January-March quarter of 2020-21 and 5.2 percent in the first two-quarters of the current fiscal.

After breaching the upper tolerance threshold of 6 percent for six consecutive months (June-November 2020), CPI inflation fell in December 2020 and eased further in January 2021 to 4.1 percent on the back of a sharp correction in vegetable prices and softening of cereal prices. However, it rebounded to five percent in February, driven primarily by base effects.

The Reserve Bank, which mainly factors in the retail inflation while arriving at its monetary policy, has been asked to keep CPI inflation at four percent with a margin of two percent on either side.

The central bank retained the key lending rate (repo) in its last monetary policy citing inflationary concerns.

The manufacturing sector — which constitutes 77.63 percent of the IIP — declined by 3.7 percent in February 2021, as per NSO data. The mining sector output declined by 5.5 percent in February 2021. However, power generation grew marginally by 0.1 percent in the month under review.

The index had grown by 5.2 percent in February 2020.

The industrial production had plunged 18.7 percent in March last year following the COVID-19 outbreak and remained in the negative zone till August 2020.

With the resumption of economic activities, factory output posted a rise of one percent in September. The IIP had grown by 4.5 percent in October. In November 2020, the factory output fell 1.6 percent, while it again entered the positive territory by growing 1.6 percent in December 2020.

See also  RBI keeps interest rates unchanged as economy faces threat amid growing COVID-19 cases

The IIP data for January 2021 has been revised to 0.9 percent contraction from a 1.6 percent decline, as per the provisional data released in March 2021.

#Retail #inflation #jumps #March #factory #output #contracts #February

Leave a Reply

Your email address will not be published. Required fields are marked *