Low base impact pushes up IIP; cheaper meals cools inflation

India’s industrial manufacturing grew by 22.4 per cent in March on the again of a low base impact from final yr when the nation had enforced nationwide lockdown to counter the unfold of Covid-19 pandemic, knowledge launched by National Statistical Office (NSO) on Wednesday confirmed. Index of Industrial Production (IIP) had recorded a contraction of 18.7 per cent in March 2020.
Cumulatively, the economic output recorded a contraction of 8.6 per cent in 2020-21 as in opposition to a contraction of 0.8 in 2019-20. Before the affect of the second wave of the pandemic, the index worth of the IIP, nonetheless, confirmed enchancment on a sequential foundation, rising to 143.3 in March from 129.6. At these ranges, the IIP is 0.5 per cent decrease than the pre-pandemic stage of 144.1 in March 2019.
Manufacturing sector output surged 25.8 per cent in March 2021, whereas mining output rose 6.1 per cent and energy technology elevated by 22.5 per cent in March.
Going forward, IIP is more likely to take a success because of the affect of the second wave of the pandemic, economists mentioned. “In level terms the factory output in March 2021 is 106.9% of the pre-COVID period (February 2020). At broad based classification the manufacturing, electricity and mining output came in at 104.6%, 117.1% and 112.7% of the pre-COVID period… now with the second wave of COVID pandemic and associated local/partial lockdowns/curfew, it is unlikely that factory output will get any better in the near term. It is quite likely that there would be an adverse impact on the factory output over the next few months, yet the factory output on yoy terms would look good in 1QFY22 mainly due to the base effect,” Devendra Kumar Pant, Chief Economist, India Ratings & Research mentioned.

ExpainedWeak demand circumstancesWeak demand circumstances have began reflecting in financial knowledge. Retail inflation charge eased regardless of affect of upper gasoline costs as core inflation — the non-food, non-fuel inflation part — which declined to a 10-month low of 5.43 per cent in April.

Separately launched knowledge on inflation confirmed retail slowing to 4.29 per cent in April from 5.52 per cent in March, primarily on account of decrease meals costs. Food inflation charge eased to 2.02 per cent in April from 4.87 per cent in March this yr.
The low meals inflation was primarily led by deeper deflation in cereals and merchandise to (-)3.0 per cent in April from 7.8 per cent in April final yr and better sequential deflation in vegetable costs to (-)14.2 per cent in April as in opposition to 23.6 per cent in April final yr. Higher inflation was recorded in April for gasoline and lightweight at 7.9 per cent and well being at 7.8 per cent. Health inflation has elevated sharply on account of COVID associated bills and has been greater than 5 per cent since October 2020.

Weak demand circumstances have began reflecting in core inflation — the non-food, non-fuel inflation part — ,which declined to 10-month low of 5.43 per cent in April.
“This fall is in spite of an increase in the inflation rate in the category of fuel and light. This pattern is indicative of the fact that while a cost push inflation is still operating through petroleum prices, lower demand for food and beverages, clothing and footwear, transport and communications and miscellaneous goods have driven the overall inflation down. The policy message is that the government needs to support demand without getting excessively concerned about the pressure on prices of petroleum products,” D Ok Srivastava, Chief Policy Advisor, EY India mentioned.