April retail inflation eases to 4.29%; March IIP grows 22.4%: Govt data

Inflation in the food basket was 2.02% in April, down from 4.87% in the preceding month; industrial production shrinks 8.6% in FY21 compared to 0.8% contraction in FY20

India’s retail inflation, measured by the Consumer Price Index (CPI), eased to 4.29 per cent in the month of April on decline in food prices. Separately, the country’s factory output, measured in terms of the Index of Industrial Production (IIP), witnessed a 22.4 per cent growth in March on low base effect, two separate data released by the Ministry of Statistics & Programme Implementation (MoSPI) showed on Wednesday.

Consumer price inflation was predicted to cool to 4.2 per cent in April, just above the RBI's 4 per cent mid-point target and down from March's four-month high of 5.52%, according to a Reuters poll of nearly 50 economists taken over the past week.

The reprieve would provide policymakers with some relief as they seek to keep prices under control amid growing risks that state-wide lockdowns and curfews imposed to tackle a record surge of COVID-19 cases could disrupt supplies and fuel price.

Inflation in the food basket was 2.02 per cent in April, down from 4.87 per cent in the preceding month.

Aditi Nayar, Chief Economist, ICRA, said given the high base related to the supply disruptions seen during the nationwide lockdown in April 2020, the CPI inflation dipped to a three-month low in April 2021, while printing somewhat higher than the expectations.

Overall, the prevailing localised restrictions appear to have had a limited impact on prices in April 2021, she added.

IIP witnessed a contraction of 3.6 per cent in February 2021. Also, IIP shrank 8.6 per cent in FY21 as against contraction of 0.8 per cent in the year-ago period. 

Manufacturing sector output surged 25.8 per cent in March 2021. Mining output climbed 6.1 per cent and power generation increased by 22.5 per cent in March.

The IIP had shrunk by 18.7 per cent in March 2020.

This is the fifth consecutive month that the CPI data has come within the Reserve Bank of India’s (RBI) upper margin of 6 per cent. At the end of March, the government asked the RBI to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for another five-year period ending March 2026.

The retail inflation data is primarily factored in by the RBI while making its bi-monthly monetary policy. 

D K Srivastava, Chief Policy Advisor, EY India said, "“Both IIP and CPI numbers released on 12 May 2021 provide strong positive signals for the Indian economy. A high positive annual growth of 22.4% in IIP in March 2021 after a contraction of 0.9% and 3.4% in January and February 2021 respectively reflects a turnaround in the manufacturing sector of the economy. Sectors which have driven this growth include motor vehicles and trailers with a growth of 78%, computer and electronic products at 74.7%, electrical equipment at 50.3%, and machinery and equipment at 41.3% reflecting a broad-based recovery in manufacturing. Some of the health-related sectors have also shown high growth rates at 35% and 26% respectively for pharmaceuticals, chemicals and related categories.

"The annual CPI inflation rate in April 2021 has fallen to 4.3% as compared to the corresponding March 2021 inflation rate of 5.5%. This significant downward movement of inflation has been primarily driven by a fall in the inflation rates for food and beverages and transport and communications. This fall is in spite of an increase in the inflation rate in the category of fuel and light. This pattern is indicative of the fact that while a cost push inflation is still operating through petroleum prices, lower demand for food and beverages, clothing and footwear, transport and communications and miscellaneous goods have driven the overall inflation down. The policy message is that the government needs to support demand without getting excessively concerned about the pressure on prices of petroleum products.”