Food price stability remains uncertain in the future, a concern reiterated by the RBI in its recent monetary policy review released last week.
In November, retail inflation surged to a three-month high of 5.55%, primarily attributed to an increase in food inflation. Other components such as housing, clothing, and footwear displayed a moderation, as per data released by the National Statistical Office (NSO) on Monday.
The NSO also reported that the Index of Industrial Production (IIP) reached a 16-month high of 11.7% in October, driven by a favorable base effect and an overall uptick across sectors, including mining, manufacturing, electricity, and capital goods.
Consumer inflation had moderated to 4.87% in October 2023 but accelerated again in November, marking the 50th consecutive month above the 4% mark within the 4+/- 2% band set by the Reserve Bank of India (RBI).
The Consumer Food Price Index (CFPI) recorded an inflation rate of 8.70% in November, rising from 6.61% in October and 4.67% in November 2022. However, core inflation, excluding food and fuel, eased to 4.2% in November, reflecting moderate input cost pressures and weakening demand.
Food and beverage inflation, accounting for 45.86% of the Consumer Price Index (CPI), increased to 8.02% in November from 6.24% in October. Notably, vegetable inflation rose sharply to 17.7% in November compared to 2.7% in the previous month.
Given the uncertain trajectory of food prices, highlighted by the RBI, the central bank is expected to maintain a prolonged pause. Elevated global sugar prices and the progress of key crops like wheat, spices, and pulses in the rabi sowing season are also concerns mentioned by RBI Governor Shaktikanta Das.
In November, inflation rates for cereals, pulses, and spices remained in double digits at 10.27%, 20.23%, and 21.55%, respectively. The fuel and light group continued to stay in negative territory at (-)0.77% in November.
While clothing and footwear inflation moderated to 3.90% in November, housing inflation eased to 3.55%. Miscellaneous inflation, representing services, also saw a decline to 4.38% in November.
In terms of the rural-urban split, the retail inflation rate in rural areas stood at 5.85% in November, higher than the 5.26% in urban areas. Food inflation for rural areas was 8.38%, slightly lower than the 9.28% in urban areas.
With lingering concerns about food prices in the coming months, the RBI is likely to maintain its cautious stance. The focus will remain on keeping liquidity conditions tight to prevent the generalization of price pressures and to support the transmission of past rate hikes.
Eight of the 22 major states/UTs recorded an inflation rate above 6% in November, with Odisha leading at 7.65%, followed by Rajasthan at 6.99%.
On the industrial output front, manufacturing, accounting for 77.6% of the IIP, grew by 10.4% in October. Mining and electricity output recorded growth of 13.1% and 20.4%, respectively. Cumulatively, during April-October, factory output grew by 6.9%.
While there was healthy YoY growth in consumer durables in October 2023, the demand weakness became evident when comparing the output to October 2020 and 2021 levels, indicating caution in interpreting the higher-than-expected IIP expansion. ICRA expects the YoY IIP growth to slow down in Nov 2023 due to fewer working days and an unfavorable base.
