CPI inflation eases to 4.06% in Jan; industry output grows 1% in Dec

December CPI inflation was 4.59%; the factory output in the country had contracted 1.9% in November

Economic data released on Friday showed that Indian economy is finally emerging from the long shadow of coronavirus pandemic with inflation further cooling and industry output showing a rebound. 

The Index of Industrial Production (IIP) grew 1% for December 2020, showed the data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Friday.

The factory output in the country had contracted 1.9% in November and grew 0.4% in December 2019. According to the Index of Industrial Production (IIP) data, the manufacturing sector output grew by 1.6% in December 2020.

Mining output declined by 4.8%, while power generation grew 5.1% in December 2020. Industrial production has been hit due to the Covid-19 pandemic since March last year when IIP contracted by 18.7% in the month. 

 

Consumer Price Index inflation eased to 4.06% in January 2021, mainly on account of a decline in vegetable prices, according to government data released on Friday.

The inflation based on CPI was 4.59% in December 2020 and 7.6% in January 2020. Core inflation remained flat at 5.7%. The rate of price rise in the food basket was 1.89% in January, significantly down from 3.41% in December, revealed the data released by the National Statistical Office (NSO).
 

The Reserve Bank, which mainly factors in the retail inflation while arriving at its monetary policy, has been asked to keep CPI inflation at 4% (+,- 2%).

"Inflation cooled off in January with a moderation in vegetable prices, animal proteins and a favourable base effect. Core inflation, however, continues to remain sticky at 5.7% with a rise in categories such as health, recreation and amusement. Going forward, a number of inflation risks remain including rising commodity prices, higher global food prices and expansionary fiscal policy leading to a pick-up in demand. Therefore, the January print could be the low point for inflation for some months to come and we expect inflation to average between 5% and 5.5% in H1FY22," said Sakshi Gupta, senior economist, HDFC Bank.

"The data shows an improvement in the growth-inflation dynamics. Despite a contraction in core industrial production, overall industrial production growth is positive in December on the back of improving outlook for consumer goods. This is certainly encouraging. While urban inflation remains elevated at 5.06%, a fall in rural inflation has brought down the overall inflation. However, a core inflation at 5.38% will keep the RBI vigilant," said Rupa Rege Nitsure, group chief economist, L&T Finance Holdings.