By Sujan Hajra
The global economy is going through a phase of serious growth slowdown. Simultaneously, despite some early signs of softening, average global inflation continues to remain close to the highest in the past several decades. India is somewhat bucking this trend. The country is witnessing growth acceleration and after rising till April 2022, inflation has retracted. The scheduled monthly macroeconomic data releases in mid-September 2022 are likely to remain in line with most of these trends.
After over 12% growth in June 2022, industrial growth in India during July 2022 is also likely to remain in the same range. In the same month of 2021, India was coming out of the second wave of the pandemic. That makes the base for the month slightly favourable. We are also observing building up of momentum in India’s economic activities. GDP data for the quarter ending June 2022 showed record growth in consumer spending. Fixed investment to GDP ratio was at the decade high. The risk factor is the loss of export momentum. With manufactured products accounting for over 75% of India’s goods exports, lack of external demand does not bode well for the medium-term outlook of India’s industrial activities.
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After peaking out at 7.8% in April 2022, retail inflation relented particularly in July 2022. Yet, it remains far above the comfort zone of the RBI. Barring unexpected revelations, the combination of unfavourable base for food products and still elevated global crude oil prices would reverse the softening trend of retail inflation in August 2022 by taking it above 7%. This would make it the highest reading after April 2022. This might make the RBI more uncomfortable especially since the US Fed has telegrammed the intention to continue with aggressive monetary tightening even if that means considerable sacrifices in terms of growth including embracing the possibility of a recession.
In contrast to hardening of retail inflation, slight softening of wholesale price inflation is expected in August 2022. Reflecting mainly the hardening of non-farm commodity prices, wholesale price inflation remained substantially higher than retail since March 2021. This would continue but the gap is likely to narrow down. Wholesale price inflation has been in the teens since October 2021. It is expected to come a tad below the teens in August 2022.
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Currently India is finding herself in a tight spot. Pressures on growth from the external sector, retail inflation well above the higher end of the central bank’s target zone and wholesale price inflation in the double-digits for the 17th straight month is not a good place to be. Yet, with the best growth rate and outlook among the systemically important countries, lower inflation versus most advanced countries and the worst of inflation behind, India is much better off versus almost all peers.
(Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers. Views expressed are the author’s own.)