Consumer inflation rose to 5.11 per cent in January after sinking to 4.28 per cent in the previous month based on revised methodology of calculation and new base year. Although the inflation rate rose, it is still well within RBI’s comfort level and would support the cause for more rate cuts in the coming months, provided prices do not rise much further again.
The government revised the product basket used for determining the consumer price index and also changed the weight shares for commodities. Moreover, it has also changed the base year for calculating consumer prices to 2012 from 2010 in sync with that of other national economic statistics.
The basket of items has been prepared to make it consistent with the international practice of shorter reference period for most of the food items and longer reference period for the items of infrequent consumption/purchase, ministry note mentioned.
Based on the previous base year data series inflation for December was pegged at 5 per cent which has been now revised to 4.28 per cent.
The new consumer inflation data bring a measure of relief for the central bank as revised figures still stands below the target of 6 per cent that the RBI had set for January next year.
RBI, after a surprise rate cut last month, decided to hold on to further rate cuts in the sixth bi-annual policy meeting early this month while cutting down on the SLR as a measure to boost liquidity. RBI governor Raghuram Rajan had put further moves in key policy rates on hold emphasising that he would take a decision after the inflation data come out and the Union Budget is presented later this month.
RBI’s next monetary policy review is scheduled for April.
Inflation as measured by Consumer Price Index has remained below the RBI set long term target for a fourth straight month.
Industrial production growth slows for December
While the consumer inflation data come as a relief for policymakers, industrial production remains a cause of concern.
Industrial output growth as measured by Index of Industrial Production (IIP) slowed to 1.7 per cent in December over the year-ago period after growing 3.8 per cent in November, the highest since June 2014. IIP estimates are still calculated on the previous base of 2004-05 base year and are yet to be revised by the statistics ministry.
During the April-December period of 2014-15, industrial output grew 2.1 per cent. This shows the government’s Make in India programme is yet to kick off in earnest. It also shows how the upcoming Union Budget could see sops for reviving the manufacturing sector.
The mining sector saw decline in output (-3.2 per cent as against 3.4 per cent growth in November) while manufacturing and electricity sectors grew 2.1 per cent (3 per cent in November) and 4.8 per cent (10 per cent in November), respectively, in December.
This shows all the electricity output growth in particular lost pace significantly. Indeed, electricity has been one of the biggest drivers of IIP in the recent past while the other two sectors have struggled to grow faster.
The cumulative growth in the three sectors during April-December 2014-15 over the corresponding period of 2013-14 has been 1.7 per cent, 1.2 per cent and 10 per cent, respectively.
In terms of industries, 13 of the 22 industry groups in the manufacturing sector have shown positive growth during the month.
As per use-based classification, basic goods output was up 2.4 per cent, capital goods was up 6.5 per cent while intermediate goods grew 4.1 per cent. Within the consumer goods basket, consumer durables declined 9 per cent while consumer non-durables rose 5.7 per cent, with the overall consumer goods growing 0.7 per cent.
Consumer durable includes cars and the impending end of the tax sop for the automobile sector would have had an impact on production in December. The temporary excise duty cut on automobiles expired in December.
IIP data still hangs as being out of sync with the revised GDP estimates which pegged Indian economic growth at a phenomenal 7.5 per cent in the three months ended December 31, 2014. However, the disconnect could be at least partly due to different base years for calculating as IIP data is yet to be recalibrated to the new base year.
(Edited by Joby Puthuparampil Johnson)