Two significant macroeconomic indices issued on Monday indicated conflicting trends. Consumer Price Index (CPI)-based retail inflation fell to an 11-month low of 5.88% in November from 6.77% in October, but the Index of Industrial Production (IIP)-based measure of industrial output shrank by 4% from 3.2% growth in September to 4.0%. For the first time in the current fiscal year, the retail inflation rate is currently below the RBI’s upper tolerance range of 6%.
At its upcoming meeting, the Monetary Policy Committee (MPC) is anticipated to further slow the key rate increase to 25 basis points. The steep fall in food price inflation is mostly to blame for the decline in retail inflation. Consumer food price inflation significantly decreased in November, falling from 7.01% in October to 4.67%, a significant decrease. The drop in food price inflation was largely due to the absolute fall in the cost of vegetables, oils and fats, sugar, and confectionery.
Considering retail inflation below 6% a surprise, According to Swati Arora, an analyst with HDFC Bank, the core inflation rate is still stubbornly around 6% and is likely to stay there till February or March. “The RBI expressed concern about inflation in its most recent policy, particularly the continuance of core inflation. With a rate increase of 25 basis points at its upcoming policy meeting, the RBI is likely to keep fighting inflation, she added. The increase in core inflation, according to chief economist Rajni Sinha, is a result of the rising pressure on services inflation.
The RBI will continue to exercise caution to avoid a spike in inflationary expectations. She added that the central bank’s decision to proceed with another rate hike at its February meeting will be “tight call” given the manufacturing sector’s discouraging data. According to official data issued on Friday, the output reduction in the manufacturing sector and the muted growth in mining and power generation were the main causes of the decline in industrial production in October.
