Retail inflation for December drops to 5.72%; Has inflation peaked? Experts talk!

NEW DELHI: Regarding the data that have been released for the month of December, the economy has experienced a double joy. IIP (Index of Industrial Production) has climbed while inflation has decreased. India's headline retail inflation fell from 5.88% in November to 5.72% in December. The result falls short of the consensus estimate of 5.9% for CPI(consumer price index). India's inflation has declined for three months in a row. The inflation rate is still higher than the central bank's 4% medium-term target, despite having fallen below the RBI's upper resistance band of 2-6%. And it has remained above that number for 39 months in a row now. Does that mean the worst of inflation is behind us?


Madan Sabnavis, chief economist, Bank of Baroda is overjoyed with the decrypted statistics. “ I think these particular numbers which come out at least statistically look very good. Inflation has come down and probably continue to move in the downward direction. It will remain above 5% for the rest of the year. What the GDP data had to say about manufacturing, which speaks of growth of just 1.6%, actually presents an ambivalent picture.”


Elara Capital's head economist, Garima Kapoor, provides her outlook on the data. “The core inflation has remained fair about sticky, hovering in the range of 590 to 610 for a very long time now. And the recent RBI policy, MPC (Marginal Propensity to Consume), had given a fact that they also need to see a core inflation trends coming down sustainably. And that picture doesn't look quite rosy. Therefore, even though the headline is reassuring, it's a mixed bag if I consider the services and core inflation. The headline is mostly led by food, which was also high six months ago.”


Future risks related to core prices could still exist which is what Emkay Global lead Madhavi Arora asserts. “ It's very important to see how the fiscal really pans out for the next one year domestically and globally, because we are looking at a change in the global regime in general. I believe that this will have an impact on monetary and fiscal authorities at home and abroad. And which, of course, will have implications for inflation down the tick and up tick.”


To ensure that industrial growth is solid in the upcoming months, however, there is probably still a lot that has to be done on the economic front.


Madan Sabnaviz's interpretation of the IIP data: “ Consequently, one trend that we've observed in the past is that all the industries that are related to infrastructure and, ultimately, to what the government spends, have tended to perform better. This really comes out from the core sector data, which has shown that industries like cement and steel have tended to do relatively better than the other segments. But today, when I'm looking at even the consumer goods segments, both durables as well as non-durables. There has been a surge in constructive growth. However, it inevitably encounters a negative growth rate. And this can certainly be explained by the spent up demand tale that actually did take place throughout this festival period.”


After receiving a lot of negative and depressing news, we are truly experiencing a bonanza. There is much reason to celebrate! Overall, the finance minister has extremely solid numbers as she completes the budget preparation process. But remember that these are the last figures she receives before presenting her budget during the first round. Despite the indisputably positive findings, internal data suggests that we need to exercise greater caution.