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Below is perspective on the CPI & IIP data By Dr. M Govinda Rao, Chief Economic Adviser at Brickwork Ratings

As expected by Brickwork Ratings, the CPI inflation rate crossed 5.5% though only marginally to 5.59% in December 2021. It was 4.59% in December last year.

Both core inflation and fuel inflation softened marginally, however, they are still at elevated levels. Fuel inflation eased to 10.95% from 13.35% in November due to softening international crude oil prices in addition to the cut in excise duties. Sharp increase in food inflation from 1.87% to 4.05% is a matter for concern. Food inflation is expected to increase further due to supply bottlenecks and adverse weather conditions. Although there has been a 68 basis points increase in the inflation rate in December over the previous month, the average inflation for Q3 remained below the RBI’s estimates of 5.3%. With inflation remaining within the comfort zone of RBI, there is no immediate concern for the MPC to continue with the accommodative stance though, it may continue with draining excess liquidity.

However, the most concerning is the sharp deceleration in the growth of the Index of Industrial Production (IIP) at 1.4% in November 2021. A significant slowdown in the manufacturing sector growth (0.9%) in particular, is a matter of concern as this will also have an impact on employment. The manufacturing sector output was constrained by severe power outages due to a supply shortage in coal in the last few months in addition to the supply disruptions in semiconductors.

With the continued supply constraints and semiconductor shortage, the growth outlook for IIP does not look bright for December month as well.

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