NEW DELHI: Retail inflation eased to a 10-month low of 4.85% in March while industrial output hit a four-month high of 5.7% in February, data released Friday showed.
With inflation maintaining its downward trajectory, the print — which was below 5% for the first time in five months — moved closer to the Reserve Bank of India’s target level of 4%.
Experts said the central bank is not likely to cut rates in a hurry and will possibly watch for the June-September monsoon and other external factors amid concerns food inflation may remain volatile. “Monetary easing is likely to be quite back-ended in 2024, pending clarity on various factors such as the monsoon turnout, the evolution of crude oil prices, and rate action from the US Fed,” said Aditi Nayar, chief economist, Icra. “At best, we foresee 50 bps (basis points) of rate cuts from the MPC in H2 FY2025.” A basis point is 0.01 percentage point.
In its monetary policy review this month, the RBI held the policy rate at 6.5% for the seventh time.
“We expect the RBI rate cut cycle to start from August, at the earliest,” said Gaura Sengupta, India economist, IDFC First Bank. “This is contingent on the Fed rate cut cycle starting from June or July. In case the Fed cycle gets delayed due to adverse US inflation prints, RBI rate cut cycle could get delayed.”
Forecasts for an intensely hot summer along with rising crude prices could also pose a risk to the inflation trajectory, experts noted.
While overall consumer inflation eased to 4.85% from 5.09% in the previous month, the decline in food inflation was marginal — to 8.52% from 8.66%.
Sequentially, food prices rose 0.16% in March, even as falling services inflation kept the overall index unchanged.
Among the food categories, double-digit inflation persisted for eggs, pulses, vegetables, and spices.
“The sustained inflationary trend in some non-perishable food categories, such as pulses and spices, raises concerns about the potential broadening of price pressures due to their inherent stickiness,” said Rajani Sinha, chief economist CareEdge, but pointed out that government measures have helped contain inflationary pressures.
Pulses inflation — it was at 17.7% in March — has been in double digits for 10 consecutive months. Vegetable inflation was at 28.3% compared with 30.2% in the previous month.
“The present heatwave poses upside risk and can increase food inflation in the coming months. Comfort is in core inflation. We need to see how the recent increases in MRP (maximum retail price) by FMCG (fast-moving consumer goods) companies work out,” said Madan Sabnavis, chief economist, Bank of Baroda.
All three industrial sectors performed well in February, with mining expanding 8% compared with 5.9% in the previous month, electricity rising 7.5% from 5.6% and manufacturing recording 5% growth compared with 3.6% in the previous month.
Experts noted that the growth was not broad-based.
“Infra-based industries have done well, consumer goods are yet to recover,” said Sabnavis.
While infrastructure and construction goods expanded 8.5% in February compared with 5.5% in the previous month and consumer durables moved to 12.3% from 11.9%, contraction in consumer non-durables intensified at 3.8% in February from 0.2% in January.
Growth in the index of industrial production (IIP) is likely to ease in March, according to experts. “The YoY performance of most available high-frequency indicators deteriorated in March 2024 vs February 2024, such as Coal India’s output and steel consumption, indicating that growth in economic activity is likely to have softened in the month,” said Nayar.
Source: The Economic Times