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Factory output growth slips; Inflation records modest uptick

* IIP grew by 3.1% in Sep v/s 12% in Aug

* All broad sectors of industry witnessed subdued growth during the month. Electricity sector (0.9% in Sep v/s 16% in Aug) was worst impacted by shortage of coal supply.

* IIP contracted by -2.6% on sequential basis.

* Manufacturing grew by 2.7% in Sep (9.9% in Aug). 10 out of 23 industry group witnessed contraction in output growth during Sep.

* CPI inflation recorded modest uptick to 4.5% in Oct

* Impact of high fuel and core inflation was offset by contained food inflation

* High logistic cost, input cost pressure and sharp rebound in vegetables prices on MoM basis are emerged as key inflationary risks to economy.

IIP growth slips to 3.1% in Sep

Indian industrial production (IIP) grew at a 7-month low at 3.1% in Sep v/s 12% in Aug as shortage of coal supply and disruption of heavy monsoon weighed on industrial activity. All broad sectors of the economy recorded low growth compared to previous month. Electricity sector was impacted badly due to coal shortage as the sector output grew by a subdued 0.6% in Sep (16% in Aug). Manufacturing sector grew by 2.7% in Sep (9.9% in Aug) weighed down by poor production in auto sector amidst concerns over semi-conductor chip shortages. Out of 23 industry group, 10 sectors recorded de-growth in production. On use based category, consumer goods sector witnessed contraction indicating weakening of demand. Capital goods grew by 1.3% in Sep (19.9% in Aug) and infrastructure at 7.4% (11.4% in Aug). During AprSep FY22, factory output grew by 23.5% as compared to -20.8% in the same period of previous fiscal.

While IIP growth slips to 7-month low in Sep on yearly basis, it was contracted by - 2.6% on sequential basis despite the favorable base (IIP grew at 1.0% in Sep’20). Poor electricity output due to coal shortage, impact of chip shortage on auto manufacturing and disruptions from heavy rain in Sep weighed on pre-festive inventory build-up. Meanwhile, high frequency data indicates that industrial activity have recovered strongly in Oct. Manufacturing PMI rose to 55.9 in Oct (53.7 in Sep) while GST collection picked to Rs1.3 lakh crore.

CPI inflation rises to 4.5% in Oct

CPI inflation rose by 13 bps MoM to 4.48% in Oct (4.35% in Sep) due to modest pickup in food prices and elevated fuel and core inflation. Consumer food price index (CFPI) rose to 0.9% in Oct from 0.7% in the previous month on increase in prices of fruits (4.9% in Oct v/s 3.6% in Sep), sugar (5.4% in Oct v/s 3.0% in Sep) and cereals (0.4% in Oct v/s -0.6% in Sep). Meanwhile, prevailing deflationary trend in vegetables (-19.4% in Oct v/s -22.4% in Sep) and decline in pulses and protein items prices helped to keep food inflation under check. Fuel inflation continued to remain at the elevated level (14.4% in Oct v/s 13.6% in Sep) on account of high crude oil prices. Transport and communication inflation was recorded at 10.9% in Oct because of high pump prices. Given the high input cost, core inflation during Oct rose to 6.2% in Oct as compared to 5.9% in Sep.

Despite the modest pick-up in the prices, inflation remained within the RBI’s target level. Though fuel & core inflation remained at elevated level, the impact on headline number was offset by contained food inflation and partly by strong base effect. Increase in transportation cost due to fuel prices, input cost pressure and strong reversal in vegetables prices on MoM basis (14.2% MoM in Oct) are the key inflationary risks. Inflation in fuel, light, transport rose to highest level in nearly seven years. Meanwhile, govt latest decision to reduce duty on fuel and possible VAT cut by states to help modestly ease the fuel inflation.

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