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Inflation remains above RBI’s target level for the third straight month

* IIP grew by 1.7% in Feb v/s 1.5% in Jan.

* Activity of mining and electricity sectorsimproved, while manufacturing remained under pressure.

* Manufacturing output growth reduced to 0.8% in Feb v/s 1.3% in Mar.

* Sharp contraction in consumer goods sector indicated weakness in private demand.

* Investmentsin economy remained weak in Feb, while infrastructure activity showed sustained momentum.

* CPI inflation rose to 17-month high of 6.95% in Mar.

* CFPI rose to 7.7% in Mar due to sharp rise in prices of vegetables and oils & fats.

* Core inflation rose to 6.5% in Mar as compared to 6.2% in Feb.

* The RBI in its latest MPC raised inflation forecast to 5.7% in FY23 from 4.5% forecasted in the previous MPC meet.

Industrial production grows at 1.7% in Feb

Industrial production grows at 1.7% in Feb Indian industrial production (IIP) grew by 1.7% in Feb as compared to 1.5% in Jan. While the factory output grew by 4- month high rate, the expansion remained subdued at low single digit given the favorable base effect as IIP grew at -3.2% in the same month of previous fiscal. Meanwhile, industrial production witnessed a sharp correction of -4.7% on monthly basis due to weak manufacturing which makes 77.7% of the IIP. Manufacturing output grew at 0.8% (1.3% in Jan) while on monthly basis, manufacturing output contracted by -5.5%. However, mining/electricity sectors recorded improvement in the output growth. Mining grew by 4.5% in Feb (v/s 2.8% in Jan) on the back of strong performance of coal output (6.6% in Feb v/s 8.2% in Jan) and natural gas (12.5% in Feb v/s 11.7% in Jan). Electricity grew by 4.5% in Feb as compared to meager 0.9% in the previous month. On use based categories, consumer goods sector witnessed contraction, while infrastructure recorded strong growth (9.4% in Feb v/s 6.1% in Jan).

The mild rise in factory output was led by mining and electricity while manufacturing, which consists major portion of the index, remained subdued. IIP growth also trailed the core sector performance which grew at 4-month high of 5.8% in Feb. Demand has been remained under pressure reflected by continued contraction in consumer durables sectors. While sharp decline in non-durables sectors at -5.5% indicates stress in the rural demand. Meager growth of 1.1% for capital goods sectors on favorable base (-4.2% in Feb’21) indicating weak investment activity though infrastructure sector continued to witness sustained improvement in the activity. Sharp sequential correction (-4.7%) and -1.6% shrinkage from the prepandemic level (Feb’20) suggests that an industrial recovery is yet to take roots.

CPI inflation rises to 17-month high at 6.95% in Mar

CPI inflation rose to 17-month high of 6.95% in Mar (6.1% in Feb) mainly led by sharp rise in food inflation while fuel and core inflation continue to remain at the elevated level. Consumer food price index (CFPI) rose to 7.7% in Mar as compared to 5.9% mainly led by costlier vegetables prices and sharp rise in prices of oils & fats (18.8% in Mar). Prices of vegetables increased by 11.6% in Mar (6.1% in Feb) while inflation at 9.6% in the protein items also put upward pressure in food inflation. Fuel inflation came at 7.5% in Mar (8.7% in Feb) due to elevated crude oil prices. Recording its highest level since Jun 2014, core inflation, excluding fuel and food, rose to 6.5% in Mar as compared to 6.2% in Feb. Inflation in other items include cereals at 4.9% in Mar (4.0% in Feb), sugar at 5.5% in Mar (5.4% in Feb), fruits at 2.5% (2.3% in Feb), pulses at 2.6% in Mar (3.0% in Feb), clothing & footwear at 9.4% (8.9% in Feb) and housing at 3.4% in Mar (3.6% in Feb).

CPI inflation has been remained above the RBI’s tolerance level (4%+2/-2) for the third straight month. Global supply crunches due to ongoing Russia-Ukraine war are impacting the commodity prices. Pass through of elevated global oil prices to transport sector has started indirectly impacting the prices of other items. Besides high crude oil and core items prices, pricing pressure is also building in certain food items such as vegetables, protein items and edible oils. In the view of building pricing pressure in economy, the RBI in its latest MPC raised inflation forecast to 5.7% in FY23 (4.5% forecasted in the previous meet) and decided to focus on withdrawal of accommodative stance. We believe the RBI may raise repo rate as soon as in Jun policy if the inflation remains above the target in Apr.

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