Perspective on IIP & CPI data by Ms. Rajani Sinha, Chief Economist, CareEdge
Below the Perspective on IIP & CPI data by Ms. Rajani Sinha, Chief Economist, CareEdge
IIP
“The IIP growth moderated to 3.2% in December from 5% in the previous month. This can be attributed to weaker manufacturing growth at 3% in December (Vs 5.5% in November) partly weighed by an unfavourable base. With this, the IIP growth improved to 3.9% in Q3 FY25 from a 2.7% growth in the previous quarter. This is in line with the GDP First Advance Estimate released last month which pointed towards an estimated improvement in industrial growth in H2 FY25. On the consumption front, consumer durables output increased by a healthy 8.3%. However, the sharp contraction in output of consumer non-durables at 7.6% is concerning and needs to be monitored in the coming months. Going forward, we could see an improvement in consumption with expected moderation in food inflation and reduction in income tax burden announced in the budget. Output of capital and infrastructure/construction goods have shown an optimistic performance which is a positive from the investment scenario. The Centre’s continued thrust on capital expenditure bodes well for these segments. Looking forward, the Union Budget’s focus on boosting consumption and continued emphasis on capex remains positive for supporting the recovery in consumption and investments, both of which remain extremely crucial for the industrial activity.”
CPI
In January, the CPI inflation moderated to 4.3% from 5.2% in December, primarily due to a slowdown in food inflation. Meanwhile, core inflation continues to remain subdued, staying below the 4% mark over the past year. While the recent depreciation of the rupee could exert pressure via imported inflation, the relatively low core inflation should help mitigate any significant concerns. The inflation rate for vegetables continued to ease, dropping to 11.3% in January from 26.6% in December. Vegetable inflation has been a significant contributor to overall CPI inflation in the recent months, averaging ~ 27% since January 2024. In fact, just by excluding vegetables, CPI inflation averaged at 3.6% since January 2024, well below the RBI’s target of 4%. In addition to the decline in vegetable inflation, ongoing deflation in spices and a fall in inflation of pulses, eggs and cereals have further contributed to the overall decrease in food inflation. Robust Kharif production along with good progress of rabi sowing have brightened the outlook of food inflation. We expect food prices will continue to ease in the coming months driven by seasonal corrections. Healthy reservoir levels will also provide the essential cushion for Kharif sowing in FY26, if the monsoon lags. However, it will be essential to monitor the double-digit inflation in edible oil. Contraction in rabi sowing of oil seeds and rise in global edible oil prices amid hike in customs duty can keep inflation in edible oils elevated. Furthermore, it will also be essential to closely monitor weather-related disruptions, such as heatwaves, whose frequency has increased in the recent years. On the external front, while Brent crude oil prices remain subdued, the growth in industrial metal prices continues to exert upward pressure on global commodity prices. In January, Bloomberg commodity prices rose by 4.1% YoY, exiting six months of deflation primarily due to strong momentum of certain base metals like copper, aluminium, tin and zinc. Going ahead, it is crucial to monitor geopolitical developments and global trade uncertainties closely, as these could significantly influence global commodity markets and supply chains. We expect inflation to average 4.4% and 4.5% in Q4FY25 and FY26 respectively. The moderation in inflationary pressure should support another 25-bps rate cut in April MPC meeting.
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