Retail inflation surged to a 77-month excessive of seven.61% in October, complicating the duty of the Reserve Bank of India at a time when Covid-induced dangers to financial progress nonetheless stay too excessive for consolation.
Industrial manufacturing, in the meantime, rose 0.2% year-on-year in September, the primary progress since February and in contrast with a 7.4% contraction within the earlier month. The progress, nonetheless, is aided by a beneficial base impact (IIP had contracted by as a lot as 4.6% in September final 12 months).
Capital items output shrank for 21 months in a row in September, reflecting gloomy funding local weather, though the extent of contraction has narrowed to only 3.3% from 14.8% in August. Consumer durables rose by 2.8% y-o-y in September, the primary rise after 15th straight month of contraction, within the build-up to the pageant season.
But what provides to the policymakers’ woes is the stubbornness of retail inflation. It has remained above the MPC’s tolerance band of 4 (+/-2)% for 10 of the previous 11 months, regardless of purported Covid-induced demand compression within the economic system.
While the federal government believes the spike is especially attributable to non permanent supply-chain disruptions within the wake of the pandemic, the RBI on Wednesday identified a potential generalisation of inflation.
Food inflation spiked to 11.07% in October, in opposition to 10.68% within the earlier month, remaining the largest driver of the Consumer Price Index (CPI).
However, even core retail inflation has risen from about 4% in March to five.7% in October. In October, core inflation rose by about 20 foundation factors from the September degree, primarily attributable to elevated stress from clothes and footwear, housing, well being, and recreation and amusement.
Expecting an prolonged pause in key coverage charges, India Ratings chief economist DK Pant mentioned: “The Monetary Policy Committee is in a difficult situation with inflation breaching 6% for three consecutive quarters, growth being low and India having a recession (two consecutive quarters of negative growth) once Q2FY21 GDP numbers are released.”
Icra principal economist Aditi Nayar mentioned: “While a base effect and some softening in vegetable prices may pull down the CPI inflation in the ongoing month, it is expected to recede below 6% only in December 2020. With the level of the headline and core CPI inflation, and the internal dynamics in October 2020 remaining worrying, a rate cut in the December 2020 policy meeting appears to be ruled out.” Even the probability of a repo price reduce in February 2021 appears relatively low at this juncture, she added.