NEW DELHI: Retail inflation accelerated to an 8-month high in September and crossed the 7%-mark as food prices hardened, dashing hopes of any interest rate cut by the RBI to bolster a faltering economy. Separate data showed industrial output contracted for the sixth month in a row in August but the pace of decline narrowed, indicating the pick-up in activity as the economy opened for business after the strict coronavirus-induced lockdown.
But the inflation numbers remained worrisome with food inflation hitting the double-digit mark in September.
Data released by the National Statistical Office (NSO) on Monday showed inflation, as measured by the Consumer Price Index (CPI), rose an annual 7.3% in September, compared to the 6.7% increase in August. Rural inflation was at 7.4%, while the rate in the urban areas was 7.3%. The Food Price Index rose to 10.7% in September, higher than August’s 9.1%, the data showed.

“Barring March, retail inflation was more than 6% in 10 months. Food inflation spiked to double digit (10.7%) after April,” said Sunil Sinha, principal economist at India Ratings. “On a quarterly basis, second quarter FY21 retail inflation at 6.95% was 24-quarter high and in the last three consecutive quarters it was in excess of 6%. India Ratings believes the RBI may pause on policy rate in the remainder of FY21 but will continue to take other measures to make financial markets function smoothly,” said Sinha.
While the pace of contraction has narrowed in the factory output data, it still remains in the grip of a slowdown with all the three key sectors — manufacturing, mining and electricity — contracting. The data showed the Index of Industrial Production (IIP) contracted 8% in August, compared to the 10.8% decline in July and 1.4% fall registered in the year earlier period.
The contraction during the April-August period was at 25%, compared with a 2.4% expansion in the year earlier period. “The negative growth is likely to continue in September but the degree of contraction will be sharply lower ahead of the festive season demand,” said Madan Sabnavis, chief economist at Care Ratings.

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