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March 13, 2024

India’s Retail Inflation Softens to 5.09% as IIP Shows 3.8% Growth in January

India’s economic landscape in January 2024 presents a mixed picture as retail inflation sees a slight easing while industrial growth showcases a modest rise. Despite the positive developments, challenges persist in aligning with the Reserve Bank of India’s (RBI) medium-term targets.

Retail inflation, a critical economic metric, registered a marginal decrease to 5.09% in February from 5.1% in January, though slightly above market forecasts of 5.02%. However, concerns linger as food inflation, a significant component of the consumer price basket, rose to 8.66% compared to 8.3% in January. This trend underscores the uncertainties surrounding food prices that continue to be a focal point for policymakers.

In contrast, core inflation, excluding volatile food and energy prices, saw a decline to 3.3% from 3.6% in January, marking its lowest level since 2012. While these figures suggest a move towards stability, they still hover above the RBI’s medium-term target of 4%, prompting the central bank to intensify efforts to achieve sustained disinflation.

Governor Shaktikanta Das emphasized the importance of navigating the “last mile” of disinflation, acknowledging the persistent challenges in achieving this goal. The Monetary Policy Committee (MPC), in its meeting held from February 6-8, maintained the repo rate at 6.5%, consistent with its stance in the past six meetings. Despite interest rates being at their highest level in nearly eight years, the MPC remains watchful, prioritizing the need for durable reduction in inflation, particularly in food prices.

On the industrial front, India witnessed a 3.8% year-on-year growth in industrial output for January, as reported by government data. While this figure falls slightly short of analysts’ expectations of a 4.1% rise, it still reflects a positive trajectory in industrial activity. The resilience demonstrated by the industrial sector amidst global uncertainties underscores its role in supporting economic growth.

Economists remain cautiously optimistic, noting that India’s economy continues to outperform expectations, providing the MPC with additional leeway to address inflation concerns. However, the path forward necessitates concerted efforts to mitigate food inflation and ensure sustained industrial growth.

In conclusion, while India’s economic indicators exhibit signs of resilience and moderation, challenges persist in aligning with the RBI’s inflation targets. As policymakers navigate through these complexities, a delicate balance between stimulating growth and managing inflation remains imperative for India’s economic trajectory in the coming months.

Jhumpa Lahiri

Jhumpa Lahiri

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