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Published: June 13, 2023
Updated: June 13, 2023

Retail Inflation Eases to 4.25% in May; April Industrial Production Shows Positive Growth

India's consumer price index (CPI)-based inflation for May decreased to 4.25%, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI). This marks a decline from April's inflation rate of 4.7%. Additionally, food inflation also saw a decrease, settling at 2.91% in May compared to 3.84% in April. These figures indicate that inflation has remained within the Reserve Bank of India's (RBI) desired range of below six percent for two consecutive months.

Lower Inflation Driven by Favourable Factors:

May's CPI-based inflation of 4.25% came in lower than expected, benefiting from a favourable base effect and a decrease in food inflation. The sequential drop in fruit and oil prices contributed to the decline, while other factors such as seasonal influences led to an increase in prices for eggs, meat, milk, vegetables, and pulses.

Inflation Outlook and Forecasts:

The RBI has projected CPI-based inflation for FY24 at 5.2%, with forecasts of 5.1% in Q1, 5.4% in Q2, 5.4% in Q3, and 5.2% in Q4. These projections suggest a balanced risk outlook for inflation.

Industrial Production Growth:

In April, the Index of Industrial Production (IIP) showed a notable improvement, with a growth rate of 4.2% compared to 1.1% in March. However, power generation experienced a decline of 1.1% in April, in contrast to the growth of 11.8% witnessed previously. Mining output, on the other hand, saw an increase of 5.1% during the period, up from 8.4% in the same period last year.

Sector-Wise Performance and Concerns:

Within the use-based classification, the capital goods segment recorded a growth rate of 6.2% in April, marking a positive trend compared to the 12% expansion seen a year ago. The manufacturing sector demonstrated improvement, and the construction sector showed robust growth. However, concerns remain regarding weak external demand, particularly impacting export-intensive sectors like textiles, wearing apparel, leather, and related products.

The easing of retail inflation in May reflects a favourable base effect and decreased food inflation. The improved industrial production growth in April indicates positive momentum, with the manufacturing and construction sectors displaying resilience. However, challenges persist due to weak external demand affecting export-driven sectors. Monitoring inflation trends and ensuring sustainable growth will be crucial as India continues to navigate economic recovery and enhance its domestic economic fundamentals.