Retail Inflation and IIP in March

April 13, 2022

In March, the annual retail inflation of India rose to a 17-month high while there was a contraction in the factory output in February, thus complicating the policy choices of the nation’s central bank.

Overview:

The National Statistical Office (NSO) has released the data showing that the retail inflation in March 2022 rose to 6.95 percent from a year ago.
The retail inflation remains above the Reserve Bank of India’s (RBI) tolerance limit for the third straight month.
On the other hand, in February, the Index of Industrial Production (IIP), grew 1.7 percent on an annual basis. The data also showed that there was a 4.7 percent contraction of the IIP month on month.
This contraction shows that the country’s economic revival is not yet stable.

Consumer Price Index (CPI)-based inflation

The country’s inflation based on the Consumer Price Index (CPI) was led by the edible oils (18.79 percent), vegetables (11.64 percent), fish and meat (9.63 percent), light and fuel (7.52 percent), and clothing and footwear (9.4 percent) segments.

Core Inflation

The Core inflation of the country has jumped to a 10-month high and stands at 6.29 percent in March from 5.96 percent in February.

Reason for the increase in inflation

Due to the gradual fuel price increase from the end of March along with higher commodity prices, structural health inflation, and a weak currency was the reason for the increase in inflation and the rate will keep on elevating at least in the first quarter of FY23.

RBI’s stand regarding the growth of inflation

The Russian-Ukraine war has increased commodity and food prices, forcing the RBI in reassessing the policy stance of the organization. In its latest monetary policy, RBI didn’t change the policy rates but it said that it will be prioritizing keeping inflation in check instead of growth incentivization.

About Index of Industrial Production

The IIP is an index that highlights the growth rates in various industry groups of the economy over a given period of time. The National Statistical Organisation (CSO) computes and publishes the IIP on a monthly basis.

In February, four of the six use-based classification segments of the IIP experienced positive growth and they are capital goods, primary goods, infrastructure goods, and intermediate goods. However, the consumer non-durables shrank to -5.5 percent and consumer durables stands at -8.2 percent.

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