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Retail inflation remains high at 6.26 per cent

As regards the factory output, the Index of Industrial Production rose sharply by 29.3 per cent in May against a decline of 33.4 per cent in the corresponding month of 2020

Our Bureau, PTI New Delhi Published 12.07.21, 10:28 PM
Representational image.

Representational image. Shutterstock

Retail inflation remained above the RBI's comfort level for the second consecutive month despite slipping slightly to 6.26 per cent in June while the factory output recorded a growth of 29.3 per cent in May, mainly on account of the base effect, the government data showed.

The marginal slippage in the Consumer Price Index (CPI)-based inflation was noticed despite little firmness witnessed in the food inflation which inched up to 5.15 per cent in June from 5.01 per cent a month ago.


Retail inflation based on Consumer Price Index (CPI) was 6.3 per cent in May 2021 and 6.23 per cent in June 2020.

As regards the factory output, the Index of Industrial Production rose sharply by 29.3 per cent in May against a decline of 33.4 per cent in the corresponding month of 2020.

As per the data released by the National Statistical Office (NSO) on June CPI, the inflation on annual basis in the 'oils and fats' segment was 34.78 per cent in June. While the rate of price rise in fruits basket was 11.82 per cent, it contracted in vegetables (-0.7 per cent).

The inflation in 'fuel and light' segment was 12.68 per cent.

The RBI has been mandated by the government to keep retail inflation at 4 per cent with a margin of 2 per cent on the either side. The central bank mainly factors in the CPI inflation while arriving at its bi-monetary policy.

The NSO data revealed that industrial production surged by 29.3 per cent in May, mainly due to low-base effect and good performance by manufacturing, mining and power sectors, but remained below the pre-pandemic level.

The manufacturing sector -- which constitutes 77.63 per cent of the Index of Industrial Production (IIP) -- grew 34.5 per cent in May this year, as per the data released by the National Statistical Office (NSO) on Monday.

The mining sector output rose 23.3 per cent in May while power generation increased 7.5 per cent during the same month.

In May 2021, the IIP stood at 116.6 points compared to 90.2 point in the same month last year. The index was at 135.4 points in May 2019 as per the NSO data. The data showed that industrial production recovered but was still below the pre-pandemic level in May 2019.

Industrial production had plunged 18.7 per cent in March last year following the COVID-19 outbreak and remained in the negative zone till August 2020.

Commenting on the CPI data, Suresh Nagpal, Chairman of Central Organisation for Oil Industry and Trade (COOIT), an apex association of edible oil, said internationally, the prices of edible oil started correcting in the second fortnight of June.

"The Government of India has also reduced duty and has lifted restriction on imports of certain edible oils for the next few months. As a result, the prices of edible oils have softened in both wholesale and retail market since mid of June. We expect prices to remain at the current level over the next few months," he said.

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, said the softer-than-expected CPI inflation comes as a relief after a shockingly high May reading.

While the headline inflation still remains elevated and risks remain, the high frequency mandi data shows further moderation in food prices in July signalling towards a return of sub-6 per cent readings going ahead, she said.

"We continue to expect the MPC to retain its current policy guidance in the August policy in favour of growth. However, towards the end of the year gradual policy normalization will be underway," she added.

On factory output, Aditi Nayar, Chief Economist, ICRA Limited said as the widening state-wise restrictions caused the sequential momentum to falter, the pace of year-on-year IIP growth expectedly flattened to 29 per cent in May 2021.

"The sequential dip in activity was broad-based across the use based categories, as well as two of the three sectors, namely manufacturing and electricity. Only mining escaped the impact of the localised restrictions brought on by the second wave of Covid-19, with a mild month-on-month uptick of 0.6 per cent in May 2021," she said.

Shravan Shetty, MD Primus Partners said: "The IIP for May at 29.3 per cent... suggests the supply chains have adopted over the last year to dampen the impact of second wave. This points to a robust Q1 considering the high-frequency parameters for June are also positive".

The output of capital goods, which is a barometer of investment, grew 85.3 per cent in May 2021 as against a contraction of 65.9 per cent in the year-ago period.

Consumer durables manufacturing increased 98.2 cent in the month under review compared to a 70.3 cent decline in May 2020. Consumer non-durable goods production grew 0.8 per cent in May this year where it was a contraction of 9.7 cent in the year-ago period.

The second wave of the pandemic started by the middle of April this year and many states imposed restrictions to curb the spread of coronavirus infections.

"The growth rates over corresponding period of previous year are to be interpreted considering the unusual circumstances on account of COVID-19 pandemic since March 2020," NSO said in a statement.

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