March retail inflation eases to 10-mth low of 4.85%; IIP grows 5.7% in Feb

But remains well above RBI's 4 per cent target

India’s retail inflation rate eased to a 10-month low in March but remained well above the Reserve Bank of India’s (RBI’s) 4 per cent target, while industrial production accelerated to a four-month high in February, paving the way for the central bank to stay focused on ensuring price stability.

Data released by the National Statistical Office on Friday showed that the consumer price index (CPI)-based inflation rate softened to 4.85 per cent in March from 5.09 per cent in February. This fall was led by fuel and light group (-3.24 per cent), reflecting a decline in cooking gas prices.

Food and beverages inflation remained elevated, easing only marginally to 7.7 per cent in March from 7.8 per cent in February. However, core inflation, which excludes volatile food and fuel items, continued to decelerate in March to 3.25 per cent. Though retail inflation in the March quarter was the lowest in 12 quarters, rural (5.45 per cent) and urban (4.14 per cent) divide in inflation widened to a 23-month high of 1.31 percentage points in March.  

On the other hand, growth in the index of industrial production (IIP) expanded to 5.7 per cent in February. It was boosted by output growth in mining (8 per cent) and electricity (7.5 per cent) while manufacturing output (5 per cent) remained the laggard.

Among food items, while prices of cereals (8.37 per cent), meat and fish (6.36 per cent) accelerated, high food inflation was led by double-digit growth in vegetables, pulses, eggs, and spices despite deceleration.

Aditi Nayar, chief economist at ICRA Ratings, said the ongoing uptrend in international crude oil prices could also pose a risk to the retail inflation outlook in the near term. The extent of the impact would depend on the pass-through to retail fuel prices.

Rajani Sinha, chief economist at CareEdge Rating, said given that RBI Governor Shaktikanta Das has been highlighting the aim of getting inflation to 4 per cent on a durable basis, the policy rates are likely to be kept on hold with no change in stance. “We anticipate that the Monetary Policy Committee (MPC) will contemplate rate cuts in the third quarter  of FY25,” she added.

Echoing similar views, Nayar said monetary easing is likely to be back-ended in 2024, pending clarity on various factors. These include turnout of the monsoon, evolution of crude oil prices as well as rate action from the US Fed.

“At best, we see 50 basis points (bps) of rate cuts in the second half of FY25,” she added. In the IIP, 10 out of the 23 manufacturing industries saw contraction in output, including tobacco products, apparel, leather products, wood products, paper products, printing and reproduction of recorded media, chemical products, electronic products, furniture and other manufacturing items.

At the use-based classification level, infrastructure goods (9.5 per cent) benefitted from government spending on capex.

Consumer durables (12.3 per cent) witnessed healthy growth, benefitting from the spending power of households in the upper-income bracket.

However, the most disappointing performance was witnessed in the consumer non-durables segment which registered a contraction (-3.8 per cent) during the month, due to persistent lower rural demand.

“Only in January 2024, all use-based segments of IIP, after a gap of 33 months, had recorded output higher than the pre-Covid level but they faltered again in February 2024. The output level of consumer non-durables in February 2024 is lower than pre-Covid figures. The overall pattern of IIP growth indicates that industrial recovery is still not broad based and only select industrial segments are doing well. India Ratings expects growth of IIP to come in at 5.5 per cent in March 2024,” said Sunil K Sinha, principal economist at India Ratings & Research.