Good news, and bad for Indian economy: Industrial output rises even as inflation surges to 4-month high

By: | Updated: June 12, 2018 6:48 PM

CPI inflation jumped further in May to a four-month high to 4.87 percent as compared to 4.58 percent of the previous month.

Low food prices bring March WPI inflation down to 7-month lowCPI inflation in April inched upward to 4.58% compared to 4.28% in March. (Image: Reuters)

CPI inflation jumped further in May to a four-month high to 4.87 percent as compared to 4.58 percent of the previous month, government data showed on Tuesday, driven by higher fuel prices and a depreciating rupee. While April IIP came at 4.9 percent for this month as compared to 4.4 percent of the previous month. Reuters poll of more than 30 economists taken 4-8 June showed annual consumer price inflation likely increased to 4.83% in May, the highest since January and above April’s 4.58%.

CPI inflation in April inched upward to 4.58% compared to 4.28% in March, 4.44% in February, and is moving towards 5.07% mark recorded in January 2018. Last year, CPI hovered near 2% to below 5%.

According to Anis Chakravarty, Lead Economist and Partner, Deloitte India, “Retail inflation took another leap on anticipated lines and realized RBI fears of a further upswing, basis which the key policy rate was hiked by 25 basis points in the latest monetary policy meet. Pass through of fuel prices largely led to surge in inflation while core inflation added to pricing pressures with broad based movement recorded across miscellaneous category, especially across travel expenses, education, and health. Separately, food prices also showed some increase on account of food price hike, especially fruits and vegetables.”

 

In May last year, it was 2.18 per cent. As per the data of the Central Statistics Office (CSO), food inflation rose to 3.10 per cent last month, as against 2.8 per cent in April. The price data is collected from selected towns by the Field Operations Division of NSSO and from selected villages by the Department of Posts. The data is received through web portals, maintained by the National Informatics Centre.

Mounting price pressure is a concern for the RBI, with its own projections for inflation raised compared with the ones made in May.

On 6 June, the Reserve Bank of India (RBI) raised the repo rate for the first time since 2014, by 25 basis points to 6.25%, as recent data showed significant increases for both inflation and growth. But the central bank kept its “neutral” policy stance unchanged.

The RBI revised up its inflation forecast to 4.7 percent for the second half of the fiscal year ending in March 2019, from the 4.4 percent it projected earlier.

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