Inflation eases to 5.1% in January, industrial output growth rises

As per data released by the National Statistical Office, the Consumer Price Index (CPI) based inflation declined on a month-on-month and annual basis.

New Delhi: There was positive news on the macro-economic front on Monday as retail inflation eased to 5.1% in January from a four-month high of 5.69% recorded in the previous month, while industrial production for December edged up, helped by a good uptick in manufacturing output, official data showed.

The industrial output growth measured in terms of the Index of Industrial Production (IIP) rose to 3.8% in December, sharply higher from an 8-month low of 2.4% recorded in November.

As per data released by the National Statistical Office (NSO), the Consumer Price Index (CPI) based inflation declined on a month-on-month and annual basis. The CPI-based retail inflation stood at 6.52% in January 2023.

“CPI inflation came in slightly softer than our expectations led by moderation in food prices,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

The retail food inflation declined to 8.3% in January from 9.53% recorded in the previous month. Vegetables inflation eased slightly but remained elevated at 27%. Foodgrains inflation (cereals plus pulses) softened by 200 basis points.

“Prices of some key food items remain high and will need to be monitored. On the plus side, rabi sowing has picked up and exceeded last year’s level which augurs well for food inflation going forward,” said Dharmakirti Joshi, chief economist at CRISIL.

Core inflation eased to 3.5% in January, the lowest level since 2019. The headline retail inflation has been above the Reserve Bank of India’s medium-term target of 4% for 52 months in a row.

Industrial output growth picked up pace in December, led by a sharp increase in manufacturing production. Manufacturing output growth rose to 3.9% in December from a low of 1.2% in the previous month.

“Encouraging sequential growth across the mining, manufacturing and electricity sectors has supported growth during the month despite an unfavourable base. The positive aspect was the improvement seen in manufacturing output,” said Rajani Sinha, chief economist at CareEdge Ratings.  

IIP growth stood at 5.1% in December 2022. In terms of the use-based categories, only primary goods reported a sequential moderation in December 2023, with all five other categories reporting an improvement. Consumer durables and non-durables output grew by 4.8% and 2.1%, respectively.

Analysts said the industrial output growth is likely to improve further in January. “With the available high frequency data for January 2024 appearing promising, we anticipate a modest rise in the IIP growth to 4-6%,” said Aditi Nayar, chief economist at ICRA.

Nayar said the retail inflation is expected to ease below 5% in February-March period, and average at 5.3% for the full year 2023-24.

“Going forward, in the next few months, the inflation is further expected to ease, however the risk to food inflation may remain upwards,” said Vivek Rathi, national director research at Knight Frank India.