Industrial production slows down, inflation rises to 5.59 percent

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New Delhi, Jan 12 (PTI) The country’s economy suffered a double blow on Wednesday. On the one hand, the pace of growth of industrial production remained sluggish for the third consecutive month and grew by only 1.4 per cent in November 2021. On the other hand, retail inflation rose to a six-month high of 5.59 per cent in December 2021.

According to data released by the National Statistical Office (NSO) on Wednesday, the index of industrial production rose 1.4 per cent in November. Growth slowed in most sectors such as manufacturing, power, mining, primary goods and consumer durables.

The main reason for this is the elimination of the effect of a weak comparative base. Industrial production declined by 1.6 per cent in November 2020.

The IIP growth is lower than the last month’s figure of 4 per cent, but better than the 1.6 per cent decline in November 2020.

Meanwhile, retail inflation rose to 5.59 per cent in December 2021 as cooking items, including cereals, milk, eggs became costlier. This has reached close to the upper limit prescribed for the Reserve Bank of India at six percent.

Consumer Price Index (CPI) based retail inflation stood at 4.91 per cent in November, 2021 and 4.59 per cent in December, 2020.

The Reserve Bank mainly looks at retail inflation data in its bi-monthly monetary policy review. The government has given the responsibility to the RBI to keep retail inflation in the range of 4 percent i.e. 2 percent to 6 percent with a variation of two percent.

Core inflation stood at a high of 6.2 per cent in December 2021. This is almost equal to the previous month.

Retail inflation has been rising since October 2021. In July also, the inflation rate had risen to 5.59 per cent, but later it moderated for the next two months.

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services, said, “Monetary policy returns to normal levels may be delayed, given the slowdown in industrial output growth and the rising case of Amicron coupled with a pick-up in inflation. While there may be an increase in reverse repo in the bi-monthly monetary policy review to be held in February, it is likely to be deferred till April.

Aditi Nair, Chief Economist, ICRA, said the rise in consumer price index-based inflation in December 2021 was mainly due to the rise in prices of food and beverages as well as clothing and footwear.

He said moderation in inflation is good in various commodities and housing, including fuel and light, along with betel, tobacco etc. category.

“Overall, we believe that gross consumer inflation will remain in the range of 5.7-6 per cent in Q4 of 2021-22,” Nair said.

In food articles, inflation in respect of cereals and its products, eggs, milk and milk products, spices and ready meals, snacks and sweets was higher in December than the previous month.

However, the pace of inflation in vegetables, fruits and oils and fats moderated.

Inflation in the fuel and light category moderated in December as compared to the previous month. But it is still at 10.95 per cent. It was 13.35 percent in the month of November.

The manufacturing sector, which accounts for 77.63 per cent of the index of industrial production, grew by 0.9 per cent in November, according to NSO data released on Wednesday. Whereas in November, 2020 it had declined by 1.6 percent.

Mineral production increased by 5.0 percent and electricity generation by 2.1 percent in the month under review. In November 2020, mining sector output declined by 5.4 per cent, while electricity generation grew by 3.5 per cent.

Industrial production grew in double digits during May to August in the current financial year. Thereafter, it declined to 3.3 per cent in September and 4 per cent in October, mainly due to the weakening of the weak comparative base.

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