IIP for January contracts 1.6%; retail inflation rises to 5.03%

After experiencing a growth of 1% in December, the Index of Industrial Production (IIP) for January slipped back into the negative territory and contracted at 1.6 per cent due to weak manufacturing, capital goods, and mining output, data released by National Statistical Office (NSO) on Friday showed.

Factory output had grown by 2.2 per cent in January last year.

Manufacturing output, which has a weight of 77.6 per cent in the IIP, contracted 2.0 per cent in January from a growth of 2.1 per cent in December, while mining output contracted 3.7 per cent from a 4.2 per cent contraction in the previous month.

Meanwhile, India's retail inflation data released separately rose to a three-month high of 5.03 per cent in February from a 16-month low of 4.06 per cent in January, mainly due to a surge in year-on-year food inflation, which increased to 3.87 per cent in February from 1.96 per cent a month ago.

Even though this is well within the RBI's medium-term target of 4±2 per cent and lower than the RBI's projection of 5.2 per cent for the January-March quarter, the sharp pickup in inflation is an indication that the central bank may need to have another look at its accommodative stance going forward.

Core inflation — the non-food, non-fuel inflation component — inched higher to 5.9 per cent in February from 5.7 per cent in January, reflecting a higher pricing power by companies, especially the bigger ones rather than those at the periphery.

The minutes of the RBI's monetary policy committee meeting held during February 3-5 had noted that the trajectory of food inflation would shape the central bank's near-term outlook.

Capital goods output, an indicator for investment, contracted 9.6 per cent in January as against a growth of 1.5 per cent in December. Consumer durables and consumer non-durables output contracted by 0.2 per cent and 6.8 per cent respectively.

Cumulatively, for April-January, India's industrial output contracted 12.2 per cent against 0.5 per cent growth last year.

A bumper kharif crop and rising prospects of a good rabi harvest were expected to be the benign factors, while price pressures were seen from pulses, edible oils, spices, and non-alcoholic beverages — along with broad-based escalation in cost-push pressures in services and manufacturing prices due to an increase in industrial raw material prices.

Friday's data showed the inflation in the oils and fats group rising to 20.78 per cent in February, with pulses recording an inflation rate of 12.54 per cent, and non-alcoholic beverages 13.92 per cent on a year-on-year basis.

The Monetary Policy Committee is scheduled to meet next from April 5-7.