The Ministry of Statistics & Programme Implementation (MoSPI) recently published separate data regarding retail inflation and factory output. This article dives into these points, breaking down the details of the recently released data and analyzes the key factors contributing to the changes.
Retail Inflation Data: An Overview
The Retail Inflation measured by the Consumer Price Index (CPI) showed a decrease to 4.59% in December 2020 from the previous month’s figure of 6.93%. Interestingly, this places the December CPI within the Reserve Bank of India’s (RBI) upper margin of 6%.
The government has assigned the central bank the task of maintaining retail inflation within the range of 4%, with a flexibility of 2% on either side as a part of its inflation targeting strategy. Despite these measures, the CPI inflation has exceeded the RBI’s upper bound target of 4 +/-2% for over 11 months.
RBI majorly takes into consideration the retail inflation data while making its monetary policies. During its recent monetary policy meeting in December 2020, RBI decided to maintain existing key interest rates (repo and reverse repo rates) and adopted an ‘accommodative stance’ through the current financial year.
Reasons Behind the Decline in Retail Inflation
One major factor behind the decline is the decrease in food prices. The inflation in the food basket experienced a significant drop to 3.41% in December from 9.50% in November.
Factory Output: A Closer Look
When it comes to the factory output of India, which is gauged via the Index of Industrial Production (IIP), there was a contraction of -1.9% recorded for the month of November 2020. The industrial growth from April to November in the fiscal year 2020-21 saw a contraction of -15.5%, in contrast to a 0.3% rise during the same period in the previous fiscal year.
Key Contributors to the Contraction
The primary sectors responsible for this contraction were the mining and manufacturing sectors. The mining sector saw a decline of -7.3% in November, whereas the manufacturing sector experienced a fall of -1.7%. On the other hand, the electricity sector showed an improvement with a growth rate of 3.5%.
Understanding the Consumer Price Index
The Consumer Price Index calculates the changes in price of commodities and services such as food, medical care, education, electronics etc, from the perspective of a retail buyer. It has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear. As of now, India maintains five consumer price indexes (CPIs), three of which specifically target different working classes.
Index of Industrial Production
The Index of Industrial Production measures the growth rates in distinct industry groups within the economy over a set period. It is a composite indicator that gauges the growth rate of broad sectors such as Mining, Manufacturing, and Electricity, and use-based sectors such as Basic Goods, Capital Goods, and Intermediate Goods.