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Retail inflation falls, core inflation continues to be worrying factor: Economists
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IANS | 12 Jan, 2023
Retail inflation for December 2022 fell to a year's low of 5.72 per
cent, mainly due to low food prices, especially those of fruits and
vegetables.
This is the second consecutive month when it has remained within the RBI's tolerance band of 2 per cent to 6 per cent.
However, economists are worried as the core inflation remains on the higher side.
The
consumer price index (CPI) based inflation was at 5.88 per cent in
November 2022, according to data released by the Ministry of Statistics
and Programme Implementation on Thursday. In October 2022, it was at a
higher band of 6.77 per cent.
Food inflation stood at 4.19 per
cent in December 2022, lesser than 4.67 per cent level of November 2022,
as per the official data.
Apart from fruits and vegetables,
prices of oils and fats as well as meat and fish also fell in December
2022 compared to November 2022.
Reacting to the inflation
numbers, CARE Ratings Chief Economist Rajani Sinha, told IANS: "Retail
inflation has eased more than expected in December, bringing the
headline print below the RBI's upper tolerance for the second straight
month."
"The softening is largely attributed to the decline in
prices of vegetables, which helped offset the rise in costs of other
products of the food basket such as cereals, milk and meat. However, the
concern is that core CPI inflation remains sticky above 6 per cent,
with evidence of high inflation in the services sector. From the policy
perspective, we believe that the RBI's move at the February MPC meeting
will be a close call with core CPI inflation remaining sticky," she
added.
CRISIL Ltd Chief Economist Dharmakirti Joshi said:
"Vegetables, the most volatile component of CPI, proved to be the joker
in the pack again: 'deflation' in vegetables (prices have declined more
than 15 per cent on-year) contributed the most in pulling down headline
inflation."
According to him, the slowdown in inflation doesn't
provide much comfort: excluding vegetables, CPI inflation actually rose
to 7.2 per cent in December (from 7 per cent in November)- led by rising
on-year prices of cereals, pulses, milk, meat and fish, and fuel.
Stickiness
in core inflation (at 6.1 per cent in December vs 6 per cent previous
month) remains the biggest worry, Joshi remarked.
Meanwhile,
factory output, which is measured in terms of index of industrial
production (IIP), rose 7.1 per cent in November 2022 as against 4 per
cent in October 2022, government data showed.
According to Sinha, the IIP growth has surprised on the upside accelerating to a 5-months high of 7.1 per cent in November.
"Largest
4.7 percentage points contribution to growth came from manufacturing
sector, while mining and electricity made a contribution of 1.4 and 1
percentage points respectively," she said.
While the base effect
supported the jump in IIP, there has also been a favourable momentum
effect. The recovery is broad-based with good performance by capital
goods, infrastructure and consumer goods, she said.
"However, the
contraction in export dependent sector like textiles, apparel and
leather products remains a worry. Going ahead, in the environment of
global slowdown, maintaining growth in industrial output will depend on
the resilience and momentum of domestic demand recovery," Sinha added.
According to Joshi, the IIP has been quite volatile, see-sawing between gains and declines since July 2022.
He said infrastructure and investment-related goods have consistently been among the top drivers of IIP growth this fiscal.
"In
November, capital goods saw the highest IIP growth (20.7 per cent
on-year), followed by infrastructure and construction goods (12.8 per
cent). This is being driven by central government's capital expenditure,
while also indicating some revival in private capital expenditure. It
was the export and consumer-oriented sectors that turned supportive,
after weakening in the past few months," Joshi added.
After
falling between July and October, consumer durables rose to 5.1 per cent
(versus -17.8 per cent previous month) and non-durables 8.9 per cent
(-13.4 per cent) - driven by robust demand during festive season on top
of a favourable base effect. With export growth turning positive in
November, major export sectors such as machinery and equipment,
pharmaceuticals and chemicals saw a revival in IIP growth, Joshi said.
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Customs Exchange Rates |
Currency |
Import |
Export |
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66.20
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64.50 |
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87.50
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84.65 |
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75.65 |
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56.85 |
As on 13 Aug, 2022 |
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