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Double Trouble For Economy? Retail Inflation At 3-Year High

By FnF Correspondent | PUBLISHED: 13, Dec 2019, 10:03 am IST | UPDATED: 16, Dec 2019, 12:25 pm IST

Double Trouble For Economy? Retail Inflation At 3-Year High Delhi: In what may be considered as a twin shocker for the economy that is already battling prolonged slowdown, India's retail price based consumer inflation has jumped to a three-year high, whereas the dwindling manufacturing activity on the back of subdued demand conditions, contracted country's October factory output. According to a recent data released by the National Statistics Office (NSO), the retail inflation rose significantly to over three-year high of 5.54 per cent in November, mainly on account of higher food prices.

The inflation based on Consumer Price Index (CPI) was 4.62 per cent in October, and 2.33 per cent in November 2018. The data also revealed that the inflation in the food rose to 10.01 per cent. This compares with 7.89 per cent October and (-) 2.61 per cent in the year ago-month. The previous high of CPI was 6.07 in July 2016.

The Reserve Bank of India (RBI) has been mandated by the government to contain inflation in the range of 4 per cent, with a margin of 2 per cent on either side.

The data assumes significance as the Reserve Bank in its latest monetary policy review maintained the key lending rates on account of rising retail inflation. Accordingly, the apex bank in the monetary policy statement predicted the CPI-based inflation to rise in the coming quarters.

Significantly, the data indicated that retail inflation level has breached the medium-term target for consumer price index (CPI) inflation of 4 per cent with a band of +/- 2 per cent.

While on the other hand, the Index of industrial production contracted by -3.8 percent in October, data showed. Factory output, as measured in terms of Index of Industrial Production (IIP), had expanded 8.4 per cent in October 2018.

A slowdown was witnessed in the manufacturing sector, which declined by 2.1 per cent in October as compared to 8.2 per cent growth a year ago. It was also reported that power generation dipped sharply by 12.2 per cent in October, compared to 10.8 per cent growth in the year-ago period.

Even the mining output too fell 8 per cent in the month under review as against 7.3 per cent growth in the corresponding period last fiscal.

The Ministry of Finance, headed by Nirmala Sitharman, has so far made slew of announcements to support crisis-hit sectors such as automobile industry, real estate, exporters, non-bank lenders and housing financiers in addition to a sharp corporate tax rate cut for domestic companies not availing of any tax breaks and to new manufacturing companies.

Last month, Sitharaman had agreed to the fact that India's economic growth rate has come down, but said that country is not going through a recession. "If you are looking at the economy with a discerning view, you see that growth may have come down but it is not a recession yet, it will not be a recession ever," Sitharaman had said.

India's growth outlook has weakened sharply this year, with a crunch that started with the non-banking finance institutions spreading to retail businesses, car-makers, home sales and heavy industries.

The Indian economy expanded by 5 per cent in April-June, its slowest annual pace since 2013 and the projections are that it may have slowed down further in the second quarter, making six consecutive quarters of slowing growth, a first since 2012.