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Factory output growth recorded a four-month high of 7.1 per cent in February, aided by strong show in manufacturing and capital goods sectors. The Index of Industrial Production (IIP) had grown at a modest 1.7 per cent in February last year.
On the other hand, retail inflation, measured by Consumer Price Index (CPI), was at a five-month low at 4.28 per cent in March on the back of lower food inflation at 2.81 percent (against 3.26 per cent in February 2018) .
The latest CPI print was however higher than the 3.89 per cent level recorded in March 2017. Sequentially, the CPI print has declined for the third straight month. CPI was at 4.44 per cent in February 2018.
However, the not-so-good news is on the core inflation front, which rose to a 43-month high of 5.4 per cent in March.
The March 2018 CPI inflation modestly exceeded the RBI’s medium term target of 4.0 per cent.
Core inflation
Commenting on the CPI print, Aditi Nayar, Principal Economist, ICRA, said notwithstanding the surge in crude oil prices and the uptick in the core inflation, there is a low likelihood of a change in the repo rate or stance of monetary policy until there is greater clarity on the impact of the minimum support prices (MSPs) for various crops, monsoon dynamics and fiscal risks on the inflation trajectory, which is unlikely to emerge in the next few months.
Anis Chakravarty, Lead Economist and Partner at Deloitte India, said: “Core inflation has continued to remain on the upside on the back of likely pass-through of input costs.
“In response to the comfortable inflationary position, the Monetary Policy Committee maintained status quo albeit turning hawkish. Despite the positive news on the food inflation front, we believe that inflationary pressures remain tilted to the upside and are likely to hover around the 5 per cent mark in 2018-19.”
Surge in oil prices
Nayar said the surge in global oil prices poses a risk to the trajectory of the CPI inflation in the near term. The extent of pass through of higher crude oil prices to retail fuel prices, in light of whether the uptick is absorbed by the OMCs or cuts in excise/VAT are instituted by the Central or State Governments, remains to be seen.
At present, ICRA expects the CPI inflation to chart an uptrend in the ongoing quarter to around 5.3 per cent in June, before recording a base-effect led easing in the subsequent months.
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