The Consumer Price Index (CPI) based retail inflation Retail inflation came in at 3.65% in August. It stood at 3.6% in July and 6.83% in August 2023. Industrial output grew 4.8% year on year in July, marginally up from 4.7% in June, with manufacturing, the largest component of the index of industrial production (IIP), improving to 4.6% in July from a seven-month low of 3.2% in the past month.
Food & services inflation play truant
Inflation in the food basket was 5.66% in August, marginally up from 5.42% in July. As per the data released by the Ministry of Statistics and Programme Implementation, inflation in cereals, eggs, pulses, fruits and vegetables was above 6% each with pulses being 13.6%. Inflation in vegetables was 10.7%.
Aditi Nayar, chief economist at ICRA said that episodes of heavy rainfall and flooding across some states on the standing crops, amidst the Indian Meteorological Department’s expectations of above normal rainfall in September and the development of La Nina conditions by the end of this month need to be watched. “These could pose upside risks to the food inflation trajectory in the near term. However, healthy reservoir levels should support a timely and plentiful rabi sowing,” she said. The core-CPI inflation eased slightly to 3.5% in August from 3.6% in July. Services inflation rose to an eight month high of 3.4%. “Overall, still more than 40% of the items have inflation above 4% suggesting the fight with inflation is not over yet,” said Paras Jasrai of IndiaRatings
Last month, the RBI kept unchanged the repo rate at 6.5%.Noting that the monsoon has been good but the risk factor of excess rains affecting crop prospects is something to be monitored, Bank of Baroda chief economist Madan Sabnavis said: “RBI will look for inflation to stay low on a durable basis and hence will be circumspect again. We believe December will be the earliest point for considering any change in policy”.
Experts also flagged the subsiding base effect. “With the base effect normalising, we anticipate a sharp pickup in the CPI inflation to around 4.8% in September, and range between 4.4-4.7% in the second half of FY25,” Nayar said.
Factory output
Factory output, measured by the Index of Industrial Production, grew 4.8% in July, a tad higher than 4.7% in June but lower than 6.2% in July 2023.
Manufacturing sector output rose 4.6% in July against 5.3% a year-ago while mining production was up 3.7% and electricity output increased 7.9%.
“Within the manufacturing sector, top three positive contributors for the month of July 2024 are – “Manufacture of basic metals” (6.4%), “Manufacture of coke and refined petroleum products” (6.9%), and “Manufacture of electrical equipment” (28.3%),” the ministry said in a statement. Capital goods registered the highest growth among use-based classification at 12%. “This was the strongest pace of growth since October 2023, signaling an uptick in investment activity in the economy. This was supported well by the government capex which picked up in July 2024,” said Jasrai. Consumption-related segments painted a mixed picture, as output of consumer durables grew by 8.2%, while non-durables output remained in the contractionary zone, falling by 4.4%.
In the April-July period, the IIP grew 5.2% against 5.1% in the year-ago period.
“IIP hinted at weakness in the production of consumption-related goods, with consumer durables growth slowing and non-durables declining at a greater pace,” said Crisil chief economist DK Joshi.
However, Joshi expects it to pick up.
“Prospects are bright for consumption this year as rural demand – the laggard last year – is likely to pick up on a good monsoon and higher agricultural production. On investment, there are signs of a pickup in private consumption,” said Dharmakirti Joshi, Chief Economist, CRISIL.