Tuesday, 02 March, 2021

Factory output shrinks, retail inflation slows

Retail Inflation Drops To 4.59% In December From 6.93% In November Government Food inflation declined to 3.41 per cent in December in 2020 compared with 9.5 per cent in November
Ginger Lawrence | 13 January, 2021, 17:35

Food inflation was 3.41 percent in December compared to 9.5 percent in November. The CPI-based inflation has held a declining trend over the past few months, declining to 6.93 per cent in November from a six-year high of 7.61 per cent in October. While retail inflation for December came down to within the Reserve Bank of India's (RBI's) medium-term inflation target after eight months, industrial production in November contracted after two months of expansion. Mining output contracted 7.3% in the month, while manufacturing declined 1.7%, indicating an unwinding of inventory build-ups with the quenching of pent-up and festive demand. The last time inflation was below the Monetary Policy Committee's (MPC's) inflation target range of 4 percent (+/-2 percent) was in March 2020.

Inflation based on Consumer Price Index, or retail inflation, for the month of December 2020 eased to 4.59%, from 6.93% in November, showed government data released on Tuesday. Industrial output grew 4.19% in October, higher than the 3.6% quick estimate.

Vegetable prices fell 10.41 per cent from a year ago in December, while cereals were up only 0.98 per cent, the data showed.

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A key measure of prices paid by United States consumers cooled in December from a month earlier as slack in the labour market and muted demand helped keep inflation pressures tame. "With global and domestic demand expected to strengthen with the rollout of Covid-19 vaccines, the core-CPI inflation may remain relatively sticky, and display a limited correction going forward", Aditi Nayar, principal economist of Icra, said. This is the lowest point in retail inflation since March previous year, when it was pegged at 5.84 per cent, marking a return to the comfort range of 2-6 per cent prescribed by the Reserve Bank of India for the first time in nine months. Electricity generation was the only sector in the positive, recording a growth of 3.5 per cent during November.

Economists said the RBI would keep a close watch on core inflation - which excludes food and energy - as the economy recovered in the months ahead. Analysts in a Reuters poll had predicted inflation of 5.28 per cent.