Retail Inflation and Industrial Output Data – May 2021
iasparliament
May 14, 2021
What is the issue?
The National Statistical Office (NSO) released the retail inflation and industrial output data.
It offers some relief from the economic impact of second wave of the COVID-19 pandemic, but there are still factors to remain cautious about.
What is the inflation scenario?
Provisional headline inflation (Consumer Price Index (CPI)) slowed to a three-month low of 4.29% in April, 2021.
This was a result of softer food prices and a statistical base effect.
A closer look at the inflation data reveals a substantial cooling in the prices of cereals, milk and milk products, vegetables, and pulses and products.
Both cereals and vegetables saw a deflationary trend widen to -2.96% and -14.2%, respectively.
Dairy products, which have the second-largest weight in the food and beverages category, also slid into deflation territory at -0.13%.
Price gains in pulses decelerated into single digits to reach a 20-month low of 7.51%.
[Earlier price gains in pulses had been bothering monetary policy makers by having been stuck in the double digits over an 18-month stretch.]
The combined impact of these slowed inflation across the food and beverages group by more than 250 basis points to 2.66%.
What is the need for caution?
The same Consumer Price Index data also point to persistent price pressures.
Price gains in meat and fish increased to 16.7% and was little changed at 10.6% in the case of eggs.
Inflation in oils and fats accelerated almost 100 basis points to 25.9%.
Transport and communication also remained in the double-digit range at 11.04%.
This was despite benefiting from the virtual freeze in the pump prices of petroleum products that coincided with recent Assembly elections.
Global crude oil is starting to rise again and local petrol and diesel prices are resuming their upward trajectory.
So, the prospect of haulage costs — for transporting goods from factory and farm gates — rising in the near term is very real.
All these could potentially result in faster inflation in the coming months, also amidst the impact of the lockdown in several states.
This, along with rising international commodity prices, the outlook for inflation gets even more uncertain.
What is the industrial output scenario?
A separate NSO release showed March 2021 industrial output jumped by 22.4%.
This again benefitted from the fact that the Index of Industrial Production (IIP) had posted an 18.7% contraction in March 2020 during lockdown.
But, industrial production numbers may also provide cheer only for a limited period.
New orders and output have slowed to eight-month lows in April 2021.
The pandemic-triggered factory shutdowns further threaten supply disruptions, industrial production, and thus, inflation faces challenges.
What is the way forward?
Measures to bolster demand are the need of the hour amidst the lockdown-induced economic impact.
Nevertheless, policymakers must stay vigilant to ensure price stability.
