March 2024 sees a decline in CPI inflation amidst a rise in industrial output, bolstering economic outlook
The Ministry of Statistics & Programme Implementation revealed fresh data on Friday, indicating a notable decline in retail inflation to 4.85 per cent in March 2024, down from 5.09 per cent in February. Concurrently, industrial production surged to a four-month high, registering a growth of 5.7 per cent in February, compared to 4.2 per cent in January.
These figures align closely with the Reserve Bank of India’s (RBI) inflation tolerance range of 2-6 per cent, maintaining stability in the economic landscape. Sequentially, the inflation rate saw a slight uptick from February’s decrease of -0.11 per cent to a rise of 0.16 per cent in the latest period.
The Index of Industrial Production (IIP) data released by the National Statistical Office (NSO) highlighted a growth of 5.7 per cent in February 2024. Specifically, the manufacturing sector witnessed a growth rate of 5 per cent, albeit slightly lower than the corresponding period of the previous year, which recorded a growth of 5.9 per cent.
The mining sector saw a substantial increase of 8 per cent in production, while power output also witnessed a notable rise of 7.5 per cent during February. Overall, the IIP exhibited a growth of 5.9 per cent during April 2023-February 2024, compared to a 5.6 per cent expansion in the corresponding period of the previous year.
Following the Monetary Policy Committee’s (MPC) meeting earlier this financial year, the RBI projected CPI inflation to hover around 4.5 per cent for FY2024-25. RBI Governor Shaktikanta Das emphasized the persistent challenge posed by food price volatility, referring to inflation as “the elephant in the room.” Despite the recent moderation in headline inflation, food price rises continue to outpace headline inflation, particularly impacting vulnerable households reliant on government food subsidies.
In response to the latest data, economists have offered insights into the inflation outlook. Aditi Nayar, Chief Economist at ICRA Ltd., anticipates food inflation to remain above 7.0 per cent in April 2024, with factors such as heatwaves potentially exacerbating the seasonal uptick in perishable prices. Similarly, Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, underscores the importance of monitoring heatwaves for their potential impact on food inflation, suggesting that the MPC may adopt a wait-and-watch approach until the first half of FY25 before considering easing measures.
As the economy navigates through these dynamics, the latest figures provide valuable insights into the trajectory of inflation and industrial production, shaping policy decisions and market sentiments in the coming months.
