IIP drops to 1.4% in Nov; Dec retail inflation at five-month high 5.59% – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/economy/iip-drops-to-14-in-nov-dec-retail-inflation-at-five-month-high-559/article38256544.ece

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Experts do not see MPC winding up easy liquidity soon

Discouraging news came on the economic front with industrial growth, based on the Index of Industrial Production (IIP) slipping to 1.4 per cent in November, the lowest in the current fiscal and retail inflation based on the Consumer Price Index (CPI) surging to a five- month high of 5.59 per cent in December.

This will put a pressure on the Monetary Policy Committee (MPC), which is scheduled to meet early next week. Experts feel that the Committee might ignore warning signs of inflation for the time being and not wind down the monetary expansion.

Pricier food items

One of the reasons for the surge in retail inflation was the increase in the prices of food items along with textiles and footwear. The unfavourable base led the inflation for food and beveragesto jump to 4.5 per cent in December from 2.6 per cent in November, driven by vegetables and eggs.

Though the sowing data have been encouraging, heavy rainfall in some regions and States stepping up Covid-related restrictions could disrupt supply chains, and weigh on the prices of perishables.

“We expect the inflation for food and beverages to exceed 5 per cent in the ongoing quarter,” said Aditi Nayar, Chief Economist with ICRA. On the overall inflation, Knight Frank India’s Rajni Sinha said that at 5.6 per cent, the CPI inflation has reached very close to the RBI’s upper band of inflation tolerance. The surge in inflation in December was expected with the high base effect wearing off. Core inflation above 6 per cent remains a cause of concern for the central bank. “Even with inflationary concerns persisting, the RBI is likely to be cautious and gradual in its monetary policy normalisation, given the uncertainties around the Covid-19 situation and fragile economic growth scenario,” she said.

According to Nayar, while the CPI inflation has hardened sharply between November and December, the uncertainty triggered by the third wave is sure to take precedence when the MPC meets next month.

“We now see a negligible likelihood of a change in stance or reverse repo hike in the February 2022 Policy review. The duration of the current wave and the severity of restrictions will determine whether policy normalisation can commence in April, or be delayed till June. With a higher inflation target, the MPC can choose to prioritise growth revival for much longer than other major central banks, for many of whom inflation control has become a pressing policy focus,” she said.

All industrial sectors down

The IIP growth came in at a paltry 1.4 per cent in November against 4 per cent in October Notwithstanding a favourable base effect, both mining and manufacturing in November showed a tepid growth of 5 per cent and 0.9 per cent respectively. Electricity sector witnessed a growth of 2.1 per cent in November.

A note prepared by India Ratings & Research’s Sunil Kumar Sinha and Paras Jasrai expressed concern that all the sectors were below the pre-Covid level (February 2020). As a result, the overall IIP was still 95.8 per cent of the pre-Covid level, it said.

“Ind-Ra expects the IIP growth to be in low single digits in the near term. It is now clear that heavy lifting by the government will have to continue to provide support to the economy,” the note mentioned.

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