Industrial production shrinks 0.3% in December as manufacturing sector dips; retail inflation rises to 7.59% in January on high food prices

  • According to NSO data, manufacturing sector output declined by 1.2% as compared to growth of 2.9% in the same month a year ago

  • The IIP growth during April-December period of the current fiscal decelerated to 0.5% from 4.7% expansion in the same period of 2018-19

  • The Consumer Price Index-based retail inflation was 7.35% in December 2019 and 1.97% in January last year

The country's factory output contracted by 0.3 percent in December, against a growth of 1.8 percent in November, weighed by a decline in the manufacturing sector, government data showed on Wednesday.

Meanwhile, the retail inflation inched up to 7.59 percent in January on costlier food items, showed government data.

The Index of Industrial Production (IIP) had grown by 2.5 percent in December 2018.

According to the National Statistical Office (NSO) data, manufacturing sector output declined by 1.2 percent as compared to growth of 2.9 percent in the same month a year ago.

 Industrial production shrinks 0.3% in December as manufacturing sector dips; retail inflation rises to 7.59% in January on high food prices

Representational image. Reuters.

Electricity generation also dipped 0.1 percent as against a growth of 4.5 percent in December 2018.

Mining sector output grew by 5.4 percent, compared to a contraction of 1 percent earlier.

The IIP growth during April-December period of the current fiscal decelerated to 0.5 percent from 4.7 percent expansion in the same period of 2018-19.

Data for the December month further revealed that production of capital goods, a barometer of investment, slumped by 18.2 percent compared to a growth of 4.2 percent in the corresponding month of the previous year.

As per use-based classification, the growth rates in December 2019 over December 2018 were 2.2 percent for primary goods, 12.5 percent for intermediate goods and (-) 2.6 percent for infrastructure/construction goods.

Consumer durables and non-durables recorded growth of (-) 6.7 percent and (-) 3.7 percent respectively.

In terms of industries, 16 out of the 23 industry groups in the manufacturing sector have shown negative growth during December 2019 as compared to the corresponding month of the previous year.

Commenting on the IIP data, Rumki Majumdar, Economist, Deloitte India, said, "The contraction in the IIP in December raises concerns about the sustainability of the green shoots in industrial activities that were visible till last month. This does not bode well for the overall economy as global headwinds already pose significant challenges to overall industries."

The retail inflation jumped to over five-and-a-half-year high of 7.59 percent in January on persistently high prices of vegetables, pulses and protein-rich meat and fish, said government data.

The Consumer Price Index (CPI)-based retail inflation was 7.35 percent in December 2019 and 1.97 percent in January last year.

The food inflation last month was 13.63 percent, compared with (-)2.24 percent in January 2019. However, it is down from 14.19 percent in December.

Vegetable inflation for January stood at 50.19 percent, against a 60.5 percent in December.

Inflation rate in cereals and products stood at 5.25 percent in January against 4.36 percent month ago.

Pulses and products recorded inflation of 16.71 percent in January against 15.44 percent in December.

Prices of meat and fish came in at 10.5 percent in January against 9.5 percent month ago. Inflation in eggs was seen at 10.4 percent against 8.7 percent in December.

The food and beverages category showed an inflation print of 11.79 percent, according to the data.

Housing turned costlier by 4.20 percent in January 2020, while for fuel and light, the inflation print was 3.66 percent.

"The internals of the food inflation are worrying, given a broad-based uptick across categories that tend to be sticky, such as proteins, and a narrower-than-expected reduction in inflation for vegetables.

"Moreover, the fairly broad-based rise in the core inflation to 4.1 percent in January 2020, driven by various services, is a cause for concern," said Aditi Nayar, principal economist, ICRA.

Nayar added that regardless of the level of retail inflation, the stance of the RBI for the monetary policy is likely to be retained as accommodative, for as long as the MPC considers the output gap to be negative. "The timing and magnitude of the next rate cut will depend on how quickly inflation appears to be reverting back towards 4 percent."

Rahul Gupta, head of research (currency), Emkay Global Financial Services, said, "It is the consecutive second month that the CPI has breached upper band of the RBI's inflation target... if inflation continues to hover above 6 percent, we don't expect the RBI (Reserve Bank of India) to cut interest rate or change its accommodative policy stance," said.

Retail inflation has breached the RBI's medium-term target of 4 percent for the fourth straight month.

The central bank had kept the key policy rate unchanged earlier this month mainly due to high inflation.

With PTI inputs

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Updated Date: Feb 12, 2020 19:29:37 IST