Informist, Wednesday, May 12, 2021
NEW DELHI – The growth-inflation mix has never been better for India, with data released today showing CPI inflation cooled to 4.29% in April and industrial production jumped 22.4% in March.
Of course, the improvement is purely statistical in nature, with favourable base effects distorting the data. But there is plenty to understand beneath the surface.
Despite the sharp downturn in inflation, price movements will remain a concern. All the major groups of the CPI, bar fuel and light, saw their index rise in April from March, suggesting momentum in inflationary pressures. The food and beverage and housing indices rose 0.9% on month, while the clothing and footwear index was up 0.6%. The overall general index was up 0.7% from March.
It was not all bad news, with the vegetable index down 3.2%. But that's about it.
"Given there is a limit to how low perishable food prices could go, non-perishables remain elevated and fuel prices have already started reversing, we see this decline (in CPI inflation) as a temporary reprieve, and are tracking CPI in May to inch up to 5.4%," Rahul Bajoria, Barclays' chief India economist, said.
The story is similar for non-food, non-fuel inflation. The broadest definition of core inflation fell to a 10-month low of 5.4%, breaking away sharply from the 6.0% handle it had attached itself to for nearly a year. But again, a high base had a role to play here. Moreover, the details were not particularly reassuring.
"The sequential momentum in core CPI picked up sharply to 0.61% in April from 0.17% in March, partly reflected in the rise in momentum in personal care end effects category for April," noted Sreejith Balasubramanian, economist at IDFC Asset Management Company.
Going ahead, the extent to which input price pressures translate into higher retail prices will need to be monitored.
It is far less straightforward for the industrial growth numbers. True, the sequential improvement in industrial activity was impressive, with the Index of Industrial Production up 10.6% even on a month-on-month basis, although that is always the case at the end of the year.
"But that's old news, largely predating the surge in infection in late March and in April that triggered local lockdowns," noted Darren Aw, Asia economist for Capital Economics.
Caution must be exercised in interpreting the latest IIP numbers and the subsequent ones.
High-frequency indicators for April have not nose-dived even as India racked up a record number of new coronavirus cases on a daily basis and states imposed fresh restrictions on movement and activities. The manufacturing Purchasing Managers' Index actually inched up to 55.5 in April from 55.4 in March, although the services PMI, expectedly, declined to 54.0 from 54.6.
"However, with movement curbs intensifying through April and May, we could see further a softening in incremental industrial activity in Apr-Jun," Barclays' Bajoria added. End
Reported by Siddharth Upasani
Edited by Aditya Sakorkar
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