Costly fuel, food push inflation to 15-month high

New Delhi: In a double whammy on the economic front for the Narendra Modi government, India’s retail inflation rose sharply to a 15-month high of 4.88 per cent in November from 3.58 per cent in the previous month, while industrial production fell to a three-month low of 2.2 per cent in October from 3.8 per cent in September.

A rising inflation, mainly due to costlier fuel, vegetables and eggs, and slowing industrial production is bad news for the Modi government at a time it is desperately looking for a turnaround in the economy after the demonetisation and GST jitters.

The Central Statistics Office (CSO) data on consumer price index (CPI) revealed that inflation in protein-rich eggs shot to 7.95 per cent in November on annual basis, as against 0.69 per cent in the previous month. In Delhi, eggs are selling at Rs 7 a piece as against Rs 5 a piece a couple of months ago.

For vegetables, it was 22.48 per cent in November. The inflation in the segment was a only 7.47 per cent in October.

Overall inflation in the food segment increased to 4.42 per cent in November as compared to 1.9 per cent in the preceding month.

In the fuel and light segment, it was 7.92 per cent against 6.36 in October. However, prices of pulses continued to show disinflationary trend and contracted by 23.53 per cent during November.

Inflation, as measured by the CPI, was 3.63 per cent in November 2016 — the month in which the note ban was announced. The previous high was recorded at 5.05 per cent in August last year.

Retail inflation in November breached the Reserve Bank of India’s (RBI) medium-term target of 4 per cent.

Earlier this month, the RBI had refused to cut interest rates on fear of increase in inflation despite pleas from the industry.

Increasing inflation means that the RBI is unlikely to go for any interest rate cut in the current fiscal.

“The hardening of retail inflation in November 2017 was broad-based, with negative surprises not restricted only to food items, but posted by many of the sub-groups. For instance, core inflation recorded a broad-based uptick to an eight-month high 4.9 percent in November 2017 from 4.6 percent in October 2017,” said Aditi Nayar, principal economist at rating agency ICRA.

The industrial production came down to a three-month low of 2.2 per cent in October after two consistent months of healthy growth — 4.5 per cent in August and 4.1 per cent in September. The fall in Index of Industrial Production (IIP) is due to poor perfomance of consumer durables, manufacturing and mining sectors.

“The moderation is not a good sign as it may suggest that the healthier growth of the previous two months may largely be on account of restocking activity (after GST implementation). The subdued industrial performance in October is also attributable to poor performance in exports, which slumped by 1.1 per cent after rising by an average 13.2 per cent in the previous three months,” said rating agency Crisil. In October, manufacturing sector grew by 2.5 per cent against a 4.8 per cent growth in the same month last year.