Owing to the recent spike in food and oil prices, India’s factory growth slowed down and retail inflation saw a rise. Retail inflation rose from 2.05% last month to a three-month high of 2.57%. Manufacturing index also dropped from 2.7% to 1.3% and industrial production fell to a low 1.7% in January 2019.
Inflation has been on a steady growth since the past few months. Although this month has shown higher inflation compared to the previous. It is still below the RBI’s goal of maintaining a below 4% inflation rate.
The RBI had recently lowered the Repo rate from 6.5% to 6.25%. Further they altered its policy stance from ‘neutral’ to ‘calibrated tightening’. It changed the path of inflation to 2.8% in the Q4 of 2018-19 to 3.2-3.4% in Q3 of 2019-20. This was done in its semi-annual policy review.
Industrial Inflation data:
Out of the 23 major industrial groups, only 11 of them have shown a positive trend. The steel industry, for example, has shown an upward trend by rising 5.7% from last year. On the other hand, industries like automobile and real estate have slowed down immensely.
During April-January 2018-19 the industrial output grew at solid 4.4% against 4.1% in the same period the previous year.
RBI’s efforts in reducing the repo rate and loosening on its inflation path are bound to help increase the industrial output. Increased money and credit supply will help in ameliorating the reduced factory growth. It will also help to pick up the stagnating GDP growth of the country.
According to the Ministry of Statistics and Programme Implementation, the inflation rate according to the Consumer Price Index (CPI) under the present NDA government has dropped from 8.60% in January 2014 to 2.57% in the month of January 2019. This massive change has been in line with the government’s and the RBI’s resolve of dragging the inflation rate down and maintaining it below a certain level. As far as the retail inflation is concerned, it solely depends on the prices of crude oil and since India relies on imports from other countries for its crude oil needs, it is subsequently dependent on the international market. The previous month showed lowered retail inflation numbers because of the price of crude oil which brought down the food prices very rapidly and therefore caused these impressive numbers. To counter this, the government has planned to reduce oil dependency on foreign nations and increase the domestic capacity of crude oil production.