Retail inflation may inch up in March, industrial output may drop

After a brief respite, prices of essential commodities and food items are on the rise again, owing to supply disruptions and higher input prices following the second wave of Covid-19.

Preliminary data of prices of food items such as pulses and edible oil, which have been pushing retail inflation, shows over 2 per cent increase in March and points to headline retail inflation getting elevated to above 5 per cent.

Similarly, a contraction of 4.6 per cent in India’s eight key infra sectors in February and a drop in manufacturing PMI (purchasing managers' index) indicate industrial output could see a deep decline.

The government is about to release industrial output and inflation numbers on Monday.

Industrial output declined to (-)1.6 per cent in January. A sharp contraction in the output of core industries points towards a deep decline of over 3 per cent in industrial output in February. Core sector accounts for over 40 per cent of the total weight of index of industrial production.

Brokerages such as Motilal Oswal, ICRA and Care Ratings have estimated a decline in the range of (-)2 per cent to (-)5 per cent in the IIP (index of industrial production).

On the retail inflation front, prices of pulses have risen close to 2 per cent in March and that of edible oil, nearly 7 per cent, preliminary data shows. These are the two food items which have been pushing inflation in the recent months.

Other than that, prices of petrol, diesel and cooking gas too have risen by over 3 per cent in the month gone by. An increase in transport fuel price leads to an overall rise in commodity prices.

Retail price inflation was 5.03 per cent in February. Motilal Oswal, Yes Bank, Care Ratings have all estimated retail inflation to be above 5.3 per cent in March. Financial Intelligence firm Moody’s Analytics had recently warned that India’s inflation was at “uncomfortably” high level and it was “worrisome”.