Nov industrial growth at 8.4%, retail inflation surges to 5.2% in Dec

IIP growth had stood at 5.7% in November 2016; CPI-based inflation in December 2017 rose to a 17-month highly, mainly on rising food prices, showed official data released on Friday

Less than a month before Finance Minister Arun Jaitley would present Budget 2018, the Narendra Modi-led government’s final full Budget in the present term, there was a mixed bag of good and bad news for the central government in the form of two sets of economic indicators released on Friday by the Ministry of Statistics and Programme Implementation (Mospi).
 
Industrial activity in the country, as measured by the Index of Industrial Production (IIP), brought some cheer, rising to a 25-month high of 8.4 per cent in November from 2.2 per cent the previous month. However, the pain for the common man continued, with the rate of retail inflation, as measured by the Consumer Price Index (CPI), going past the 5 per cent mark to stand at a 17-month high of 5.2 per cent in December -- mainly on account of high food prices -- compared with a 15-month high of 4.88 per cent the previous month. Annual retail food inflation rose 4.96 percent in December from 4.35 percent in the previous month.
 
In October, growth in IIP had declined by almost half to a three-month low of 2.2 per cent, despite it being a festival month, from 4.1 per cent the previous month. This was seen as an indication that the restocking after the goods and services tax (GST) roll-out had not given a boost to IIP.
 
A high rate of inflation in November seemed to have justified the Reserve Bank of India's (RBI’s) stance of a status quo in its monetary policy review earlier last month. Retail inflation breached the central bank's medium-term target for the second straight month in December which could intensify pressure for RBI to raise policy rates in the next few months. RBI had projected inflation to be in the range of 4.3-4.7 per cent in the second half of the year. The RBI holds its next policy review on Feb. 7

Analysts polled by Reuters had predicted December's consumer inflation rate would climb to 5.10 percent, the highest since July 2016, from 4.88 percent in November.

RBI, which has a medium-term inflation target of 4 per cent, has raised its inflation estimate to 4.3-4.7 percent for the six months through March. But some analysts feel inflation could overshoot its estimates.

Sunil Sinha, principal economist at India Ratings, said the RBI was unlikely to change its policy stance soon.

"If the inflation pressure continues beyond this level, one can expect the central bank to change its policy stance to hawkish," he said.

Rising inflation amid firm global crude oil prices is a major worry for Prime Minister Narendra Modi ahead of his last full-year budget, due on Feb. 1, as he hopes to win a second term in 2019.

Analysts said any sharp rise in state spending in the budget that fuels inflation could force the central bank to raise rates earlier than expected.

The U.S. central bank is forecasting three rate hikes for 2018. It raised rates three times last year.

While the world's seventh largest economy is expected to grow at 6.5 percent in the current fiscal year ending in March, a continued rise in inflation from 1.46 percent in June, the lowest on record since 2012, has alarmed policymakers in New Delhi.

Crude prices have rallied, sending Brent crude above $70 a barrel on Thursday for the first time since December 2014, a worry that India imports most of its energy needs.

Despite a cut in taxes, retail petrol prices have risen 5.6 percent and diesel by 9 percent since June in the Indian capital.