Retail Inflation Spikes for 9th Straight Month to 7.4% in Sept, Aug Factory Output -0.8%

Rising for the ninth consecutive month, retail inflation spiked to a five-month high of 7.41% in September from 7% in August with food inflation rising to its steepest level in 22 months at 8.41%.

Meanwhile, factory output based on the Index of Industrial Production (IIP) slipped into the negative at -08.% in August after 17 months mainly due to a decline in the manufacturing and mining sectors, according to data released by National Statistical Office (NSO) on Wednesday.

September’s retail inflation, measured by the Consumer Price Index (CPI), is the highest since April when price rise had peaked at a nearly eight-year high of 7.79%, The Indian Express reported. The Reserve Bank of India (RBI) is responsible for maintaining retail inflation at 4% with a margin of 2% on either side till March 2026.

The Consumer Food Price Index (CFPI), or the inflation in the food basket, increased as well to 8.60% in September from 7.62% in August.

Cereals were costlier by 11.53% with rural areas facing nearly 12% inflation in September compared to 9.6% in August and 6.9% in July. The prices of vegetables in rural areas almost doubled from 10.9% in July to 18.05% in September with urban consumers facing a sharper 20.05% rise, The Hindu reported.

Spices became costlier by 16.88% while inflation in milk and products rose 7.13%. Egg prices slipped -1.79% but fruits grew costlier by 5.68%.

Clothing and footwear inflation, which has been more than 8% since December 2021, increased to 10.17% in September with rural India facing a higher inflation rate of 10.41% and footwear prices surging by 12.3%.

Fuel and light inflation was above the 10% mark for the fourth consecutive month at 10.4% in September while inflation in manufactured goods continued to remain above 7%.

The latest inflation figures will compound the problems of the RBI, which factors in the CPI data while preparing their bi-monthly monetary policy. On September 30, the RBI increased the repo rate by 50 basis points (bps) to 5.90%. The central bank has raised the key interest rate by 190 bps in this year so to check inflation.

The World Bank and the International Monetary Fund have already lowered India’s GDP growth forecast below 7% for 2022-23.

The contraction in factory output in August from the negligible 2.2% growth in July was due to 0.7 decline in manufacturing— which accounts for 77.6% of the IIP— compared to the year-ago period and 1.48% lower than July and 3.9% drop in mining from a year ago and 0.95% below July. Overall, industrial production in August was 2.3% lower than in July.

Consumer durables and consumer non-durables contracted by 2.5% and 9.9% respectively, indicating subdued demand. Capital goods output grew 5%.

Only electricity generation clocked an increase with a 1.4% rise in August from a year ago and a 1.3% growth over July. However, August’s electricity output index is the second lowest since April 2022.

“The negative growth in consumer durable is a bit perplexing as usually around this time, consumer durable manufacturers step up their production to create an adequate inventory to meet the upcoming festival season demand. The pattern of growth across used-based classification suggests that consumption demand is likely to witness more headwinds in the coming months from high inflation and reversal of the interest rate cycle,” Sunil Kumar Sinha, principal economist, India Ratings said.

“The demand for capital/infrastructure goods may continue to get support from the sustained government capex spending. This reinforces our view that the ongoing industrial recovery not only continues to be fragile but is also not broad-based,” Sinha added.