IIP grows 1% in Dec; retail inflation cools to 16-month low of 4.06% in Jan

Indicating some signs of recovery, industrial production recorded a positive growth of 1 per cent in December while retail inflation cooled to a 16-month low of 4.06 per cent in January, providing some leeway to RBI to cut interest rate to boost consumption.

Indicating some signs of recovery, industrial production recorded a positive growth of 1 per cent in December while retail inflation cooled to a 16-month low of 4.06 per cent in January, providing some leeway to RBI to cut interest rate to boost consumption.

Industrial production entered the positive territory after a month, mainly due to better performance of the manufacturing sector, official data showed on Friday.

The manufacturing sector -- which constitutes 77.63 per cent of the index of industrial production (IIP) -- recorded a growth of 1.6 per cent in December 2020.

Mining sector output declined by 4.8 per cent.

However, power generation grew by 5.1 per cent.

The IIP had grown by 0.4 per cent in December 2019.

Consumer durables output surged by 4.9 per cent, compared to 5.6 per cent contraction in December 2019.

Consumer non-durable goods production grew by 2 per cent, compared to a contraction of 3.2 per cent a year ago.

Retail inflation eased to a 16-month low of 4.06 per cent in January, mainly on account of softening food and vegetable prices.

It is for the second consecutive month that retail inflation based on the Consumer Price Index (CPI) has remained within the target range of RBI which is 4 per cent (+/-2 per cent).

The retail inflation stood at 4.59 per cent in December 2020 and 7.59 per cent in January 2020. The previous low for retail inflation was in September 2019 at 4 per cent.

The rate of price rise in the food basket was 1.89 per cent in January this year, significantly down from 3.41 per cent in December, revealed the data released by the National Statistical Office (NSO).

"Driven by a fairly broad-based moderation in the food inflation, the CPI inflation in January 2021 softened appreciably to a 16-month low...

"Food prices have displayed a mixed trend so far in February 2021.

"The rise in onion prices, as well as higher crude oil prices and their transmission into retail fuel prices are areas of concern that need to be monitored," said Aditi Nayar, principal economist, ICRA.

Vegetable prices showed further decline during the month with a negative inflation print of 15.84 per cent, while that of pulses and products eased to 13.39 per cent.

Inflation in vegetable was (-)10.41 per cent and pulses and products at 15.98 per cent in the preceding month (December 2020).

Likewise, protein rich 'meat and fish', eggs and 'milk and products' witnessed softening of inflation at 12.54 per cent, 12.85 per cent and 2.73 per cent, respectively.

The rate of price rise in 'fuel and light' category, however, picked up to 3.87 per cent as against 2.99 per cent.

"The inflation rate has come well below the RBI's threshold rate, and this actually gives some relief to the markets on the immediate trajectory of interest rates.

"However, core inflation is perched at 5.70 per cent, something that may take more time to move down," said Joseph Thomas, head of research - Emkay Wealth Management.

The RBI mainly factors in the retail inflation while arriving at its monetary policy. The government has mandated the central bank to ensure the inflation remains at 4 per cent, with a margin of 2 per cent on either side.

Photograph: Amit Dave/Reuters