India’s Retail inflation Hits 5-month high of 7.41% in Sept; Industrial Activity Sees Contraction In August

India’s retail inflation accelerated to 7.41 per cent in September, compared with 7 per cent in the previous month, according to official data. September has registered the five-month high level amid the a surge in food prices. Meanwhile, the Index of Industrial Production (IIP) witnessed a fall of 0.8 per cent in August as compared with a growth of 2.4 per cent in July.

Inflation in rural areas in September 2022 rose to 7.56 per cent, while that in urban areas accelerated to 7.27 per cent, according to the latest data from the National Statistical Office (NSO). In September 2021, the retail inflation had stood at 4.35 per cent.

Inflation in the food basket rose to 8.60 per cent in September this year, compared with 7.62 per cent in August.

It is the ninth month that the Consumer Price Index (CPI)-based inflation has remained above the RBI’s upper tolerance limit of 6 per cent, and has risen despite the central bank’s efforts to curb it. The retail inflation had stood at 7.04 per cent in May, 7.01 per cent in June, 6.71 per cent in July, 7 per cent in August and now 7.41 per cent in September.

Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said, “CPI inflation in September at 7.41 per cent was in line with our expectations at 7.35 per cent. Food items continue to see an upside in price momentum, especially in cereals and vegetables. Lower acreage and unseasonal rains will continue to impart upside to food prices. Core inflation at 6.26 per cent is in line with the trend of the past 4-5 months and will likely be around this handle over the rest of FY2023.”

Rakshit said the September inflation print should keep the RBI on course for a 35-bps hike in December with inflation remaining above 6 per cent at least till February 2023 and reduce gradually towards the 4.5-5.5 per cent range in FY2024. External sector concerns as well as uncertainty on energy prices will keep the RBI’s policy contingent on incremental data and events.

Meanwhile, industrial production, as measured by the IIP, contracted 0.8 per cent in August as compared with a 2.4 per cent jump in July, according to the latest data.  The IIP had grown 13 per cent in August 2021.

The latest data shows that the manufacturing sector’s output contracted 0.7 per cent in August 2022. The mining output contracted 3.9 per cent, while power generation increased 1.4 per cent during August.

In April 2020, industrial production had contracted 57.3 per cent due to a decline in economic activities in the wake of the lockdown imposed to curb the spread of coronavirus infections.

Aditi Nayar, chief economist at ICRA, said, “In an unpleasant surprise, the IIP contracted in August 2022, with heavy rains dampening construction activity and electricity demand, and the bleak manufacturing output belying the hope generated by the robust GST e-way bill data. In our view, it is better to look at the uptrend in the GST e way bills in August-September 2022 for cues regarding the strength of festive demand, than the tepid manufacturing growth print of August 2022.”

She added that the YoY growth of most available high-frequency indicators improved in September 2022 relative to August 2022, amidst the onset of the festive season, such as Coal India Limited’s output, vehicle registrations, electricity generation, ports cargo traffic, rail freight traffic and diesel consumption, which is likely to help the IIP return to a positive, albeit modest growth, in the just-concluded month.

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