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Inflation hits an eight-month low, eases to 4.35% in September

Retail inflation of India eases to 4.35 percent in the month of September from 5.3 percent witnessed in August, government data released on Tuesday showed.

It is for the third time in a row that the Consumer Price Index fell between 4 to 6 percent which is also Reserve Bank of India’s tolerance band for inflation.

The inflation number recorded in September is considerably lower than the reading in the corresponding month of last year during pandemic i.e. 7.27 percent.

Moreover, it is the lowest inflation growth recorded since April, 2021.

The moderation in the inflation growth rate is mainly on account of the ease in food prices that relaxed to 0.68% as compared to a Consumer Food Price Inflation (CPFI) recorded in August.

Since the country is witnessing recovery in demand after reopening of the economy, prices have driven up globally.

Last week, RBI Governor Shaktikanta Das had said that overall, the CPI headline momentum is moderating, which combined with favourable base effects in the coming months could bring about a substantial softening in inflation in the near term.

Australia shares end flat as inflation data stokes rate-hike bets

Australian shares were largely flat on Wednesday, as early gains were countered by subdued mining stocks, domestic inflation data and a sharp fall in Woolworths Group after the supermarket major flagged a slowdown in sales.

The benchmark ASX 200 index ended flat at 7,448.7 points.

Markets were rattled after Australia’s core inflation accelerated to a six-year high in the September quarter, fuelling fears that interest rates could be hiked sooner than previously advised by the country’s central bank.

“The CPI number has made two- and three-year bond rates go through the roof in terms of the yield, and the market is now starting to adjust to the fact that we will get some rates increases, maybe even towards the back end of 2022,” Henry Jennings, senior analyst at the Marcustoday Financial Newsletter said.

The Australian dollar firmed 0.4% after the data release, while short-term bond yields touched their highest since late 2019.

The metals and mining sector was the top decliner on the benchmark, sliding 1.2% on weak iron ore prices.

Global mining majors Rio Tinto and BHP group lost 1.8% and 1.4%, respectively.

Gold stocks also tripped, with Kingsgate Consolidated Ltd losing most with an 11.1% drop.

The heavyweight financial sector closed at its highest level since May 2017.

Three of the “Big Four” lenders were trading up between 0.6% and 1.4% ahead of their earnings release.

Meanwhile, Woolworths’ 3.2% decline on warning that lockdown-fuelled sales were slowing also weighed on peer Coles Group, down 1%.

In New Zealand, the benchmark S&P/NZX 50 index closed 0.4% lower at 13,020.26 points, with dairy firms A2 Milk Company Ltd and Synlait Milk Ltd leading losses.

Elsewhere, Japan’s Nikkei was down 0.03%, while S&P 500 E-minis futures were up 0.1%.

RBI remains laser-focused to bring back inflation to 4 per cent: Governor Shaktikanta Das

The Reserve Bank remains laser-focused to bring back retail inflation to 4 per cent over a period of time in a non-disruptive manner, Governor Shaktikanta Das stressed while voting for status quo in interest rates, as per minutes of the October policy meeting released on Friday. The central bank has been mandated by the government to ensure the Consumer Price Index (CPI) based inflation is at 4 per cent, with a band of 2 per cent on either side. The retail inflation, which was above 6 per cent during May and June, has started moving down and stood at 4.35 per cent in September.

As per the minutes of the Monetary Policy Committee (MPC) meeting held during October 6 to 8, Das said in its August 2021 meeting, the panel was faced with the challenges posed by headline inflation exceeding the upper tolerance threshold for the second successive month.

The actual inflation outcomes for July-August, with inflation registering a substantial moderation to move within the tolerance band, have vindicated the MPC’s outlook and monetary policy stance, he noted.

The more-than-expected softening of inflation in July and August this year was underpinned by the significant lowering in food price momentum, especially in August.

Going forward, the governor said if there are no spells of unseasonal rains, food inflation is likely to register significant moderation in the immediate term, aided by record kharif production, more than adequate food stocks, supply-side measures and favourable base effects.

“Volatile crude oil prices, particularly the resurgence since mid-September, is pushing pump prices to new highs, raising risk of further spillover of high transportation cost into retail prices of goods and services,” he said.

He opined that continued monetary support is necessary as the economic recovery process even now is delicately poised and growth is yet to take firmer roots.

At this critical juncture, “our actions have to be gradual, calibrated, well timed and well-telegraphed to avoid any undue surprises”, he asserted.

While voting to keep the policy rate unchanged and continue with the accommodative stance, Das said, “In parallel, we remain laser-focused to bring back the CPI inflation to 4 per cent over a period of time in a non-disruptive manner.”

All members of the MPC — Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Mridul K Saggar, Michael Debabrata Patra and Shaktikanta Das — unanimously voted to keep the policy repo rate unchanged at 4 per cent. Also, all members, except Varma, voted to continue with the accommodative stance.

Deputy Governor Patra said while the trajectory of inflation may undershoot the projections made in August, it is likely to be uneven, sluggish and prone to interruptions.

He also opined that even as domestic macroeconomic configurations are improving, the risks from global developments are rising and warrant a close watch as they could stifle the recovery that is underway in India.

Exports are directly at risk from logistics bottlenecks, shortages of containers and personnel in international shipping, and elevated freight rates. Policy interventions, including coordinated multilateral efforts, are needed urgently to prevent global trade from choking, he opined.

“In my view, the biggest risks to India’s macroeconomic prospects are global and they could materialise suddenly,” he added.

RBI Executive Director Saggar stressed that “an Arjuna’s eye” needs to be kept on commodity prices and “we need to consider different scenarios according to which we can calibrate our policies.”

He said that in his assessment, the probability that oil prices may touch or cross USD 85 per barrel before the year ends and could average USD 80 or more in second half is not insignificant.

“It can have significant impacts that are hard to precisely quantify due to non-linearities and uncertainties but, on a ballpark from the baseline, can be expected to raise inflation by 15-20 bps, lower growth by 13-15 bps, have negligible effects on fiscal subsidies and widen CAD by about 0.25 per cent of GDP,” he added.

Varma, the external member on the panel, said several arguments he made in his August MPC meeting continue to be valid.

“Since August, I have become increasingly concerned about two other risks that have become salient globally in recent weeks,” he said.

The first is that the ongoing transition to green energy worldwide poses a significant risk of creating a series of energy price shocks similar to that in the 1970s. The second recent concern is about the tail risk to global growth posed by emerging financial sector fragility in China, he said.

“Both of these risks — one to inflation and the other to growth — are well beyond the control of the MPC, but they warrant a heightened degree of flexibility and agility.

“A pattern of policy making in slow motion that is guided by an excessive desire to avoid surprises is no longer appropriate,” said Varma, who voted against the accommodative stance.

External member on the MPC Ashima Goyal said global price shocks have turned out to be more persistent, contributing to sticky core inflation and tax cuts on petroleum products are “essential” to break the upward movement that could impart persistence to domestic inflation.

She also said there is large uncertainty built into current prices because of the speculative element that seeks to profit from aggravated shortages.

“Large sudden falls are therefore possible,” she said, and added oil prices have shown high volatility.

She further said the “climate change activism” that is partly responsible for current spikes will also reduce oil demand in the future.

The third external member on the MPC, Shashanka Bhide said investment activity has picked up over the levels seen 2020-21 but is yet to reach the 2019-20 levels.

Accelerated progress in vaccinations and a number of economic policy initiatives to open up opportunities for investment are among the factors constituting positive stimulus to fresh investments.

Three members on the MPC are RBI officials and the government appoints three eminent economists as external members on the panel.

Labour Bureau begins data digitisation with CPI for industrial workers compendium

The government on Thursday said a compendium on Consumer Price Index for Industrial Workers (CPI-IW) is the beginning of the digitization process of data on labour and price statistics.

The CPI-IW is used to regulate the dearness allowance of government employees and workers in the industrial sectors besides the fixation and revision of minimum wages in scheduled employment.

While releasing the compendium, Minister of State (Independent Charge) for Labour & Employment Santosh Kumar Gangwar said it is a first of its kind publication.

“The compendium on CPI-IW, the mainstay of Labour Bureau India, is the beginning of digitization process of data on labour and price statistics stored in its warehouse,” the labour and employment said in a release.

CPI-IW has been compiled by the Labour Bureau since 1945 and is one of the most used statistical indicators.

Noting that the extent to which their real wages are protected from erosion on account of price rises depends on the quality and reliability of the CPI series, the ministry said: “As such, it becomes necessary to examine critically the consumer price index numbers that are currently being published and used with a view to assuring the users of their reliability and also standardizing the concepts and methods of compilation”.

The series was revised on base 1982 and 2001. The government released a new series of the index last year with a revised base year of 2016 against 2001 earlier.

WPI inflation in July slips to 25-month low of 1.08 per cent on cheaper food items, fuel

NEW DELHI: India’s wholesale inflation hit a 25-month low in July, highlighting weak demand in the economy and triggering calls for further rate cuts by the Reserve Bank of India. Inflation as measured by the wholesale price index (WPI) stood at 1.08% in July, data showed on Wednesday, slowing sharply from 2.02% in June.

Inflation in manufactured products, with a weight of 64.23%, eased to 0.34% from 0.94%, suggesting lack of pricing power for manufacturers in the face of weak consumer demand. Wholesale inflation in July was the lowest since June 2017, when it had slowed to 0.9%. “This was mainly due to a sharp decline in inflation for manufactured items at 0.3%, which is not good news for industry as it indicates loss of pricing power,” CARE Ratings said in a note.

Data show possibility of further moderation in retail inflation going ahead. Retail inflation eased to 3.15% in July from 3.18% the previous month, data released on Tuesday showed.

DK Joshi, the chief economist at ratings firm Crisil, said inflation numbers suggested that demand in the economy was weak and that the RBI had room to cut interest rates further.

The central bank cut rates last week by 35 basis points, or 0.35 percentage point, for a cumulative 110-basis-point reduction so far in 2019, even as it lowered its growth forecast to 6.9% for fiscal 2020 from 7% earlier. The RBI will next review monetary policy in October.

Car sales fell 31% in July, while industrial production rose a tepid 2% in June. Global uncertainty has, meanwhile, weighed on exports. GDP growth fell to a five-year low of 5.8% in the January-March quarter.

“Both the Consumer Price Index and the WPI number for July have been lower than expectations and are broadly signalling towards a slowdown in the economy,” said Sakshi Gupta, the India economist at HDFC Bank.

Inflation in food articles — with an over 15% weight in WPI basket — slowed to 6.15% in July from 6.98% the previous month.

In fuel and power, prices captured in the WPI fell 3.64% from a year earlier in July, compared with a 2.2% on-year decline in June.

WPI inflation is expected to remain muted in the near term, reflecting continued softness in commodity prices, although a weaker currency may arrest the correction in price of imports, said Aditi Nayar, the principal economist at ratings firm Icra. Core inflation as measured by the WPI, which excludes fuel and food and is considered an indicator of demand, slowed to a 33-month low of 0.2%.

Factory output grows 4.3% in July

NEW DELHI: Industrial growth picked up pace in July, providing some relief to a government battling to revive the slowing economy and deteriorating consumer sentiment, but experts cautioned that the uptick may not last.

Industrial production, as measured by the index of industrial production (IIP), rose 4.3% in July, much improved from that for June, which has been revised down to 1.2% from 2% estimated earlier, data released by the statistics office on Friday showed. It was 6.5% in July last year.

Cumulative April-July growth was 3.3%, well below 5.4% for the same period in the last fiscal.

Separately released data showed consumer inflation rising marginally to 3.21% in August from 3.15% in July, but remained well below the Reserve Bank of India (RBI) target rate of 4%.

Experts cautioned against reading too much into one month’s numbers.

‘Recovery Trend may be Short-lived’
“Given the disappointing trends revealed by the high-frequency data available for August 2019, we should not conclude that a recovery is underway based on the pickup in industrial growth in July 2019,” said Aditi Nayar, principal economist, ICRA, adding that the trend is likely to be short-lived.

Passenger car sales declined 41% in August.

“It will be too early to term this as recovery and one has to wait for some more time and completion of forthcoming festive season to judge whether the industrial recovery is there for real,” said DK Pant, chief economist, India Ratings. Economic growth plunged to a 25-quarter low of 5% in the June quarter.

The government has responded with several measures such as capital infusion in banks and relaxation in foreign direct investment limits for select sectors. It has promised steps to revive the housing and automobile sectors soon.

With inflation in a comfortable range, the RBI is likely to add to rate cuts of 110 basis points already announced this year when it reviews monetary policy in early October. A basis point is 0.01 percentage point.

The central bank has already mandated banks shift to an external benchmark such as repo rate or yields on government securities to ensure its rate cuts are passed to consumers.

Broad-based recovery
All the three key constituents of IIP — manufacturing, mining, electricity — reported better numbers in July. Manufacturing, which has the highest weight of 77.6% in the IIP, reported 4.2% growth in July against an almost flat June. Mining output rose 4.9% in July while electricity generation was up 4.8%.

In terms of sectors, food products, apparel and basic metals reported double-digit growth. In all, 13 out of 23 industry groups reported positive growth.

Production of consumer non-durables, a barometer for the rural economy, rose 8.3% in July but that of consumer durables, demand for which is more urban centric, fell 2.7%. Production of capital goods, an indicator of investment activity, fell 7.1%.

“IIP growth has surprised for the month of July. An increase in intermediate goods production signals that there could be some pickup going ahead,” said Sakshi Gupta, senior economist at HDFC Bank.

January industrial output expands 2%; retail inflation in February eases

NEW DELHI: Factory output growth improved in January after a mild decline in December while retail inflation eased in February, offering the Reserve Bank of India (RBI) the option of an immediate rate cut to counter the disruption caused by the Covid-19 pandemic.

Data released by the statistics office on Thursday showed industrial output grew 2% in January against an upwardly revised 0.07% rise in December.

The simultaneously released Consumer Price Index (CPI) showed retail inflation slowing to 6.58% in February from 7.59% in January due to softer food inflation. “With domestic and global growth expected to face downside risks from the spread of Covid-19 and deflationary forces emerging, we see room for up to 50 bps of rate cut by the MPC (monetary policy committee), with any further easing contingent on the evolving growth environment,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.

The next policy review is scheduled for the first week of April.

The central bank said on Thursday it was prepared to take all necessary measures, raising the prospect of an early monetary review aimed at cutting rates, said experts.

The US Federal Reserve and other central banks have already announced measures to support national economies amid forecasts that global growth could slow to below 2% from 2.9% in 2019. OECD has lowered the global growth scenaro to 1.5% from 3% in a worst-case scenario if the spread of the virus is not contained.

The US Fed’s rate cut has increased the chances of a similar cut in India, said Indranil Pan, chief economist at IDFC First Bank. “A 35-40 basis point cut may not boost credit growth immediately but will arrest the negativity that has sunk in because of the coronavirus,” he said. A basis point is 0.01percentage point.

Food inflation fell to 10.81% from 13.63% in January and that in vegetables was 31.61% compared with 50.19% in January. Among protein-rich items, meat and fish inflation was 10.20% during the month, while that for eggs was 7.28%.

Uncertain Growth
Independent economists expect a further dip in industrial production as global trade gets hit due to the coronavirus outbreak. “There is uncertainty on the production side and automobile sales are showing that,” said Pan.

“Given that January was not the period where the Covid-19 was active in other parts of the world, the impact on supply chains will be felt more in February and March,” said Madan Sabnavis, chief economist of CARE Ratings.

Manufacturing output rose 1.5% compared with 1.3% growth in the same month a year ago while electricity generation increased 3.1% in January against 0.9% growth in the year earlier.

April-January industrial growth was 0.5% against 4.4% in the yearearlier period. December factory output swung from a 0.3% decline earlier to a 0.07% increase. Mining output grew 4.4%.

At the use-based level, the steepest contraction was in the capital goods sector at 4.3% followed by 4% in consumer durables and 0.3% in consumer non-durables. Both consumer durable and nondurables have witnessed negative growth.

( Originally published on Mar 12, 2020 )

Inflation | Retail inflation for industrial workers eases marginally to 5.33 pc in July

NEW DELHI: Retail inflation for industrial workers eased marginally to 5.33 per cent in July compared to 5.98 per cent in the same month last year, mainly due to lower prices of certain food items.

“Year-on-year inflation based on all-items stood at 5.33 per cent for July 2020 as compared to 5.06 per cent for the previous month (June 2020) and 5.98 per cent during the corresponding month (July 2019) of the previous year,” a labour ministry statement said.

The food inflation stood at 6.38 per cent in July, compared to 5.49 per cent in the previous month and 4.78 per cent during the same period a year ago, it added.

The All-India CPI-IW (consumer price index for industrial workers) for July 2020 increased by 4 points to 336. On one-month percentage change, it increased by 1.20 per cent between June and July 2020 compared to 0.95 per cent rise in the same period the previous year.

The data showed that the maximum upward movement in the current index came from housing group, contributing (+) 2.28 percentage points to the total change.

The food index further accentuated the overall index by (+) 1.77 percentage points.

At item level, wheat atta, mustard oil, milk (Buffalo), green chillies, brinjal, gourd, palak, parval, potato, tomato, snack saltish, cooking gas, firewood, bus fare, petrol, tailoring charges, etc are responsible for the increase in index.

However, this rise was checked by rice, fish fresh, goat meat, poultry (chicken), lemon, etc, putting downward pressure on the index.

At centre level, Jamshedpur recorded the maximum increase of 36 points followed by Haldia (23 points), Tiruchirapally (13 points), Kodarma and Faridabad (12 points each), Srinagar (11 points), Lucknow and Doom-Dooma Tinsukia (10 points each).

Among others, 8 points increase was observed in 2 centres, followed by 7 points in 5 centres, 6 points in 8 centres, 5 points in 7 centres, 4 points in 10 centres, 3 points in 9 centres, 2 points in 9 centres and 1 point in another 9 centres.

On the contrary, Madurai recorded the maximum decrease of 5 points. Among others, 3 points decrease was observed in 1 centre, 2 points in another 1 centre and 1 point in 2 centres. Rest of 6 centres’ indices remained stationary.

The indices of 31 centres are above All-India Index and 45 centres’ indicators are below the national average. The indices of Chhindwara and Jalandhar centres remained at par with All-India Index.

Commenting on the data, Labour Minister Santosh Gangwar said, “The rise in annual inflation is mainly due to hike in house rent and items like Potato, Tomato, Medicine, Bus Fare, Petrol, etc”.

The CPI-IW is a benchmark for working out dearness allowance for the government employees and pensioners.

The minister said that in the increase in CPI-IW (cost of living) will have a positive effect on wages/salaries of industrial workers engaged in organised sector besides government employees and pensioners.

Director-General Labour Bureau D S Negi said, “Despite various constraints faced by field staff in the collection of price data in view of COVID-19, Labour Bureau has brought out the monthly indices as per the schedule time frame without interruption”.

He further said the rise in the index is mainly due to housing and food group items.

Housing index is revised on a six-monthly basis in January and July every year.

In the food segment, potato and tomato are the determining factors for the rise. Besides, fuel items like cooking gas and petrol also experienced a hike in prices, he added.

The Labour Bureau, an attached office of the Ministry of Labour & Employment, has been compiling CPI-IW every month on the basis of the retail prices of selected items collected from 289 markets spread over 78 industrially important centres in the country.

Inflation | Retail inflation for industrial workers eases to 5.27% in November

New Delhi: Retail inflation for industrial workers eased to 5.27 per cent in November compared to 5.91 per cent in October, mainly due to lower prices of certain food items.

“Year-on-year inflation based on all items stood at 5.27 per cent for November, 2020 as compared to 5.91 per cent for the previous month (October) and 8.61 per cent during the corresponding month of the previous year,” a labour ministry statement said.

It said that the food inflation stood at 7.48 per cent in November as against 8.21 per cent in the previous month. Food inflation was at 9.87 per cent in the year-ago period.

The retail inflation measured in terms of all-India CPI-IW (Consumer Price Index for Industrial Workers) for November increased by 0.4 points and stood at 119.9 points.

The maximum upward pressure in the current index came from Food & Beverages group contributing (+) 0.25 percentage points to the total change.

At an item level, prices of Rice, Arhar Dal, Fish Fresh, Milk, Mustard Oil, Soyabean Oil, Sunflower Oil, Onion, Potato, Chillies Dry, Tea Leaf and Cooked Meal pushed the index reading higher.

However, this increase was checked by fall in prices of Poultry (Chicken), Tomato, Brinjal, Carrot, Cauliflower, Ginger, Gourd, Green Coriander Leaves, Lady Finger, Peas and Orange, among others.

At a centre level, Puducherry recorded the maximum increase of 4 points. Among others, 3-point increase was observed in at 4 centres, 2-point rise at 7 centres and 1 point increase at 30 centres.

On the contrary, Guntur, Bhilai, Udham Singh Nagar and Vadodara recorded a maximum decrease of 2 points each. A fall of one point was observed in 17 centres. In rest of the 25 centres, the indices remained stationary.

“The rise in index coupled with fall in annual inflation will have a dual impact in terms of increasing income and purchasing power of the workers. The effect is mainly due to vegetables which had good supply in the market and provided respite to the consumers,” Labour Minister Santosh Gangwar said.

Director General of the Labour Bureau D S Negi said the rise in the index during November and fall in inflation rate are in line with other price indices compiled and released by other government agencies.

The rise in the index was mainly on account of increase in prices of Rice, Arhar Dal, Fish Fresh, Milk, Mustard Oil, Soyabean Oil, Sunflower Oil, Onion, Potato, Chillies Dry, Tea Leaf, Cooked Meal, Cooking Gas, and Household Goods & Services.

The CPI-IW is the single-most important price statistics which has financial implications.

It is primarily used to regulate the dearness allowance of government employees and workers in industrial sectors. It is also used in fixation and revision of minimum wages in scheduled employments besides measuring the inflation in retail prices.

The Labour Bureau has been compiling the CPI-IW every month on the basis of retail prices collected from 317 markets spread over 88 industrially important centres in the country.

Inflation | Inflation remains low in last 7 years: Govt

The government on Tuesday informed Parliament that inflation has remained low in the last seven years – except for a spike in some items – and the government is taking steps to bring it further down. Minister of State for Finance Anurag Singh Thakur, during Question Hour in the Rajya Sabha, said food items in the consumer price index (CPI) are showing a month-on-month decline. Commodities such as cereals, meat and fish, egg, vegetables and pulses have declined during January-February.

“Overall, inflation has remained low in the last seven years. But in some items, there was a rise in prices due to supply constraints because of COVID-19 and a rise in demand,” he said, responding to a supplementary query.

In 2013-14, there was double-digit inflation. In comparison to that, now inflation is less. However, the government is making efforts to bring it further down, he added.

Thakur said the government took measures to reduce the import of oilseeds and pulses by boosting production, giving a higher minimum support price to farmers.