Retail Inflation in India for the month of September, 2022 reported at 7.41%, hitting 5-month high
The Retail Inflation or Consumer Price Inflation was mainly
driven by the food component of the Consumer Price Inflation (CPI) Index. The
food inflation rate for the month of September came in at 8.6% which hits a 22
month high.
And at the same time, the factory output gauged by Index of
Industrial Production (IIP) got contracted for the month of August, 2022 by
0.8%. The factory output gauged by Index of Industrial Production (IIP) for the
month of July had seen a growth of 2.2%.
The contraction in the factory output gauged by Index of
Industrial Production (IIP) was mainly driven by contraction in mining and
manufacturing sector. The mining sector for the month of August contracted by
3.9% where the manufacturing sector was contracted by 0.7%.
Digging deeper into the Retail Inflation or Consumer Price
Inflation for the month of September, prices of cereals were up 11.53%, spices
were up 16.88%, footwear were up 12.3%, vegetables were up 18.05%, fuel was up
by 10.39%, meat and fish were up by 2.55%, oils and fats were up by 0.37%,
pulses were up by 3.05%, sugar was up by 1.59%, and eggs were down by 1.79%.
In case of factory output gauged by Index of Industrial Production
(IIP) which constitutes of 23 sectors in total for the month of August, 9
sectors saw contraction. The 9 sectors that faced contraction were tobacco products,
textiles, furniture, pharmaceuticals, apparel, rubber and plastics, leather,
electrical equipment and fabricated metal products.
The sectors which saw contraction as per use based segregation,
the contraction in the factory output gauged by Index of Industrial Production
(IIP) was driven by consumer durables and consumer non-durables. The consumer
durables saw contraction by 2.5% and consumer non-durables saw contraction by
9.9% in the Index of Industrial Production (IIP).
But the electricity had seen a growth 1.4% for the month of
August.
Now where the problem is or the crux of what is happening.
The Reserve Bank of India (RBI) Act mandates the Monetary
Policy Committee of Reserve Bank of India (RBI) to have an inflation target of
4% with 2% variation on both upside and downside. This means that the Monetary
Policy Committee of Reserve Bank of India (RBI) will have to target their policy
decision such that the average Consumer Price Inflation stays within the range
of 2%-6%.
Now it will be considered a failure if the Monetary Policy Committee
of Reserve Bank of India (RBI) fails to maintain the average Consumer Price
Inflation with in this range for three consecutive quarters. In such a case, Reserve
Bank of India (RBI) will need to write a letter to the government explaining
the reason for the same and what steps will the Reserve Bank of India (RBI)
take further to correct the same.
With the latest print of data released by the National
Statistical Office (NSO) reporting the Retail Inflation or Consumer Price
Inflation for the month of September at 7.41%, the Retail Inflation or Consumer
Price Inflation has remained above 6% for the ninth consecutive month i.e., for
three successive quarters.
Which means that Reserve Bank of India (RBI) failed to meet
the inflation target mandate of 2-6% for three consecutive quarters and thus
will need to write a letter to the government explaining the reason for the
same and what steps will the Reserve Bank of India (RBI) take further to
correct the same.
The double whammy for the Reserve Bank of India (RBI) has
arisen from the fact that the economy has finally shown sign of weakness as
shown by the contraction in factory output gauged by Index of Industrial Production
(IIP) and at the same time the retail inflation or consumer price inflation
print is showing no sign of cooling as seen by the latest print of data
released by the National Statistical Office (NSO) reporting the Retail Inflation
or Consumer Price Inflation for the month of September at 7.41%.
There has always been a trade-off between controlling inflation
and keeping growth rates for the economy higher. As to control inflation
Reserve Bank of India may need to keep hawkish stance and resort to raising the
interest rates in the economy via its monetary toolkit which includes the most
common being an increase in the repo rate.
But such a stance may hamper the economy which is struggling
to be back on track after the tough lockdowns. The increased interest rates or
tighten monetary policy may affect the businesses and industries as shortage of
liquidity may infer higher borrowing rates which may result into postponement of
capital expansion plans as well as may also trigger struggle for survival for
firm which are already reeling under huge debt burden.
So Reserve Bank of India (RBI) will need to walk a tight
rope going forward in order to take India out of current circumstances and for
the achievement of $5 trillion economy target.
The problem as of now is not only domestic but mostly is the
result of global geo-political concerns as well as supply chain disruptions
which have resulted into inflated prices of almost all the commodities from crude
and metals to food and chemicals including fertilizer and so on and so forth.
For India out of all above commodities, crude stands apart
from all as a concern as India is the 3nd largest consumer of crude
oil and out of its total requirements of crude oil, 85.5% is imported.
Just to mention in FY22 India imported 212.2 million tons of
crude oil which amounted to $119.2 billion. The same in FY22 was 196.5 million
tons worth $62.2 billion.
And for every $1 increase in oil price, the impact on
India’s current account deficit sums to about $1 billion.
So this will clearly result into one of the strongest case
of imported inflation and mitigation remains at a distance for such almost
non-controllable factors unless India goes for renewables by leaps and bounds.
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