India's retail inflation increased to 5.03% in February, mainly due to higher food prices, according to government data released on Friday.
CPI is an abbreviation for the Consumer Price Index, which indicates or measures variations in the cost level of consumer products and services purchased by households. Inflation is characterized as a steady increase in the overall amount of price over time.
According to data released by the Ministry of Statistics and Programme Implementation, the Index of Industrial Production (IIP) dropped by 1.6% in January 2021. In December 2020, industrial production increased by 1%, and in January 2020, it increased by 2%.
The IIP had risen in the preceding two months, in contrast to the contraction seen in January. In November, the index increased by 0.4 percent, followed by a 1% increase in December 2020.
In January, manufacturing production decreased by 2.0%, while mining output decreased by 3.7%. In the meantime, power generation increased by 5.5% in January. Inflation declined to 4.06% in January, the lowest since October 2019.
"It is a worry on both front, CPI after staying at 4% level for 2 months has risen to over 5% in the month of February. The rise in inflation is on account of elevated food, vegetable prices, core inflation at 5.88% is a concern. The rising crude price and its impact on retail fuel prices are a risk to inflation going forward," said Mr. Nish Bhatt, Founder & CEO, Millwood Kane International, an investment consulting firm on CPI & IIP data.
After growth in December, the industrial production contracted in January mainly due to weakness in manufacturing and mining component, this despite progressive unlocking by government in most pockets of the country. This rising inflation and falling industrial production scenario are likely to have a bearing on the MPC meeting next month he added.
In February, the CPI inflation rate in the metropolitan region was 5.96%. During the month, the general inflation rate in rural areas was 4.19%. According to the National Statistical Office (NSO), the combined inflation rate was found to be 5.03 percent.
"Headline CPI inflation inched up from 4.1% YoY in Jan-21 to 5% YoY last month, in line with the market consensus (and our expectations). Details, however, suggest that food inflation was slower than projected (3.9% vs. 4.2%) and core inflation was higher (5.6% vs. 5.4%," said Mr. Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services Ltd.
Separately, the index of industrial production (IIP) declined unexpectedly by 1.6% YoY in Jan-21, following a growth of 1.6% in Dec-20 and in stark contrast to the market consensus (and our exp.) of +1%. The entire decline was led by the manufacturing sector, which saw broad-based worsening (more than two-third components declined). Capital goods and consumer goods declined again, while other industries (basic, intermediate and infra) posted marginal growth in Jan-21, he added.
Overall, the pick-up in inflation and fall in IIP is the worst possible combination. We hope IIP would come back into growth territory from Feb-21, though CPI may pick up further to ~5.4% in Mar-21. Accordingly, we expect MPC to maintain status quo in April's policy, said Mr. Nikhil Gupta added further.
In January, the core sector, which accounts for 40.27% of the IIP, increased by 0.1%.