Retail inflation rose to five-month high of 7.41 per cent in September, while India’s industrial production slipped to an 18-month low, contracting by 0.8 per cent in August. The retail inflation stood at 7 per cent in August and 4.35 per cent in September 2021.
The two sets of data released by the Statistics and Programme Implementation Ministry paint a worrying picture about the state of the economy. The rise in inflation will mount pressure on the Reserve Bank of India to continue with its monetary tightening policy and further hike the lending rate.
While the rise in inflation has been attributed mainly to costlier food items, India’s industrial production (IIP) has shrunk due to a decline in output of the manufacturing and mining sectors.
The retail inflation has remained above the Reserve Bank of India’s tolerance level of 6 per cent for the ninth month in a row. And 36 consecutive months above the RBI midterm target level of 4 per cent. Inflation in the food basket rose to 8.60 per cent in September this year from 7.62 per cent in August.
With inflation remaining above the 6 per cent level, the RBI, now, will have to give a report to the Central Government giving reasons for failure to contain inflation at 4 per cent with a bias of 2 per cent on either side.
The Centre has mandated the RBI to ensure that retail inflation remains in the range of 2-6 per cent.
This will be the first time since the onset of the Monetary Policy Framework which came into effect in 2016 that the RBI will be made to explain its actions in a report to the Government.
In September, RBI Governor Shaktikanta Das said acute imported inflation pressures felt at the beginning of this fiscal year have eased but it still remains elevated across food and energy items.
IIP slipped to an 18-month low, contracting by 0.8 per cent in August, mainly due to a decline in output of the manufacturing and mining sectors, according to official data released on Wednesday.
The data showed that the previous low in industrial output growth was a contraction of 3.2 per cent in February 2021. Factory output, measured in terms of the Index of Industrial Production (IIP), had expanded by 13 per cent in August 2021. The IIP grew by 2.2 per cent in July this year.
The manufacturing sector shrank by 0.7 per cent in August 2022 compared to the 11.1 per cent growth recorded in the year-ago period, as per the data released by the Statistics and Programme Implementation Ministry.