Factory output declines in November, food fuel inflation rises in December

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

Although factory output pointed to a slowdown in the pace of manufacturing growth in November, it grew 6.4% in the April-November period of this fiscal year, a notch above the figure of 5.5% in the same time a year ago.

The elevated level of inflation underlines the central bank’s cautious stance on interest rates, indicating possible measures by the government to curb rising prices.

Retail inflation rose to 5.69% in December from 5.55% in the previous month, the fastest monthly rise since August 2023. Interestingly, during the period April-December 2023, the highest monthly retail inflation was recorded during December followed by July and August. July recorded the highest inflation rate of 7.4% in 15 months due to a sharp rise in prices of vegetables and other food items like pulses, spices and cereals.

Earlier high inflation levels had prompted the government to take supply-side measures, such as releasing substantial grain stocks from reserves, while actively managing imports and exports of pulses to ensure supply. The government also banned the export of rice and sugar to control inflation.

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

Food inflation, measured by the Consumer Food Price Index, which accounts for almost half of the total consumer price basket, rose to 9.53% in December 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 7.6% in November 2022. In November, output in manufacturing rose 1.2% year-on-year, mining 6.8% and electricity 5.8%.

Capital goods production, a proxy for fixed investment in the economy, declined 1.1% year-on-year during November. At the same time, production of consumer durables, which gauges consumer sentiment, also declined by 5.4% on an annual basis during the month.

During November, monthly industrial production growth was the slowest in the April-November 2023 period. Industrial production growth rate, which stood at 4.61% in April this fiscal, maintained its momentum and registered double-digit growth in August and October on the back of mining output growth, festival demand for manufactured goods and power generation, the lowest growth ever. Before entering. In November of the year.

“While the adverse economic conditions resulted in a broad-based growth slowdown, month-on-month contraction in the power and manufacturing sectors hampered overall IIP growth,” said Rajni Sinha, chief economist at CareAge.

“The gradual increase (in retail inflation) was led by food inflation, which rose 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, cereal and product inflation declined to single digits and declined for the fifth consecutive month, India Ratings said in a statement. It reached a 48-month low of 3.89% in December 2023. The decline in core inflation at a time of strong economic growth is a puzzle,” it said.

Data released in November showed that the Indian economy recorded an impressive growth of 7.6% in the September quarter, led by an expansion in the manufacturing sector, leading the Reserve Bank of India (RBI) to raise its FY24 growth estimates. Has been revised to 7%. The earlier estimate was 6.5%.

The government’s first advance estimates released last month pegged India’s growth at 7.3% in fiscal 2024, aided by sustained investment growth and strong output in manufacturing, construction and some services.

In the first advance estimates, the Finance Ministry said strong domestic consumption and investment drove GDP growth in H1FY24.

Private final consumption expenditure (PFCE) registered a growth of 4.5%, taking its share in GDP to 60.4%, the highest in H1 FY2012, excluding the pandemic year of FY2011 .

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

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

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

The slowdown in manufacturing activity in India comes at a time when the country is facing challenges in the form of slow global growth and consumption. Indian exports have been affected, resulting in export growth slowing in recent months and the trade deficit widening significantly.

However, international agencies and the RBI have raised FY2024 growth projections for India due to higher than expected consumption.

The International Monetary Fund (IMF) and the World Bank expect the Indian economy to grow at 6.3% in FY 2024.

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Published: Jan 13, 2024, 12:26 am IST