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Dec inflation at 15-month low but Nov IIP contracts; experts weigh in

Updated : January 13, 2021 01:31 PM IST

Declining vegetable prices brought down the retail inflation to a 15-month low of 4.59 percent in December and within the comfort zone of the Reserve Bank, government data showed on Tuesday. It is for the first time during the current fiscal that the Consumer Price Index (CPI) based inflation print is below 6 per cent or in the RBI's target range of 2 to 6 percent.

However, industrial production contracted by 1.9 percent in November, entering the negative territory after a two-month gap, mainly due to poor showing by the manufacturing and mining sectors. The manufacturing sector which constitutes 77.63 per cent of the index recorded a contraction of 1.7 percent in November 2020, as per data released by the National Statistical Office (NSO).

The Q4 Consumer Price Index (CPI) estimate will be 70-80 bps lower than what Monetary Policy Committee (MPC) had anticipated, said Soumya Kanti Ghosh, Group Chief Economic Advisor of State Bank of India (SBI), on Wednesday.

“The full year (CPI) average which earlier was 6.4 or 6.5 percent is now close to 6-6.1 percent. However, at this point of time the vagaries of volatile vegetable prices have retained the CPI trajectory to a different plane than what the market was expecting. So expect this to continue in the next month," said Ghosh.

Meanwhile, Ananth Narayan, Professor at SP Jain Institute of Management & Research (SPJIMR) said, “Inflation will trend lower. Earlier the MPC was erring on the side of being too low on their forecasts and now it seems to be flipped on the other side of the pendulum and 5.8 percent that they have given for Q4 of FY21, it will be significantly lower than that by the looks of it.”

“However, the point is these pendulum swings tell us that trying to figure out where inflation is headed and it’s a very difficult game in India. We keep looking at the current forecast and then they change dramatically when one series of number come either on food inflation or on other core inflation elements,” added Narayan.

For entire discussion, watch the video
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