Retail inflation accelerates to 7.79% in April; March IIP growth at 1.9%

The jump in CPI inflation has been long anticipated following the Central govt's decision to wait until after key state elections in March to hike fuel prices

Driven by rising food and fuel prices, India's retail inflation soared to an eight-year high of 7.79% in April this year, which may prompt the Reserve Bank to go in for another interest rate hike in the next month policy review to tame price rise.

The previous high in the consumer price index (CPI)-based retail inflation was recorded at 8.33% in May 2014.

The jump in CPI inflation has been long anticipated following the Centre's decision to wait until after key state elections in March to hike fuel prices. Energy prices globally have soared since Russia's invasion of Ukraine in late February.

India's industrial production has grown a lacklustre 1.9% on year in March, pulled down by an unfavourable base effect and price rise. Industrial production had grown 1.7% in February as well.

Industrial production had soared 24.2% in March last year.

Food inflation, which accounts for nearly half the consumer price index (CPI) basket, reached a multi-month high in April and remained elevated due to higher vegetable and cooking oil prices globally. Inflation in the food basket rose to 8.38% in April from 7.68% in the preceding month and 1.96% in the year-ago month.

The rate of price rise in 'fuel and light' category in the retail inflation basket quickened to 10.80% in April this year from 7.52% in the preceding month.

In the 'oils and fats' category, inflation remained at an elevated level of 17.28% (18.79% in March 2022) during the month, as Ukraine is one of the major sunflower oil producers in the world and India imports a major portion of the commodity from the war-ravaged country.

Besides, Ukraine is a key supplier of fertiliser to India. 

Vegetables witnessed an inflation print of 15.41% during the month as against 11.64% in March, the data showed.

"The surge in the CPI inflation has clearly justified the off-cycle rate hike last week, and significantly raised the likelihood of a back-to-back rate increase in June 2022. We see a higher base softening the May 2022 CPI inflation print, although it will remain above 6.5%," said Aditi Nayar, Chief Economist, ICRA.

After the off-cycle Monetary Policy Committee (MPC) meeting of RBI last week, RBI Governor Shaktikanta Das had said the adverse effects of the unprecedented high global food prices due to the ongoing geopolitical situation are reflecting in the domestic market as well, and going forward inflationary pressures are likely to continue.

Meanwhile, news reports said the central bank is likely to raise inflation projections in the MPC meeting next month and would also consider a rate hike to tame inflation, which is above its comfort level.

Earlier this month, the MPC raised the key policy rate (repo) by 40 basis points with an aim to tame the rising inflation. It was the first rate hike after August 2018.

As per the Index of Industrial Production (IIP) data released by the National Statistical Office (NSO), the manufacturing sector's output grew 0.9% in March 2022.

Mining output climbed 4%, and power generation increased 6.1%.

During 2021-22, the IIP grew 11.3% as against an 8.4% contraction in 2020-21.

Industrial production has been hit due to the coronavirus pandemic since March 2020, when it had contracted 18.7%.

It shrank 57.3% in April 2020 due to a decline in economic activities in the wake of the lockdown imposed to curb the spread of coronavirus infections.