IIP:
As expected, the IIP growth decelerated sharply to 2.4% in November from the previous month’s 11.6% primarily on account of a normalising base. While an unfavourable base resulted in a broad-based growth moderation, month-on-month contraction seen in the electricity and manufacturing sectors further constrained the overall IIP growth. Within the use-based components, the concerning aspect is the continued weakness seen in consumer goods component and the sharp deceleration in infra-related segment. Furthermore, the contraction witnessed in capital goods output also came as a negative. Going ahead, we expect growth numbers in the coming months to be impacted by a further normalisation of the base.
Going ahead, a durable and broad-based improvement in consumption demand is a key monitorable. It remains to be seen if the pre-election spending can provide the much-needed impetus to rural demand. On the external front, though the global economy has remained largely resilient in the face of several headwinds, we maintain a cautious outlook amid weakness in exports. Given this background, a durable recovery in domestic demand remains critical for the trajectory of industrial activity going ahead.
CPI:
Elevated food prices and an unfavourable base propelled headline inflation to a four-month peak of 5.7% in December 2023. However, the upside was contained with the sustained deflation in the fuel and light category and a moderation in core inflation just below the RBI’s target of 4%. Despite marginal sequential moderation, food prices remained largely sticky, which drove up the year-over-year growth in December. The persistently high inflation in specific food categories, such as cereals, pulses, and spices, raises concerns about the potential broadening of price pressures. Additionally, inflation of the fruits and vegetable basket, which is seasonal in nature, also remained in double digits. A projected decline in Kharif production and uncertainties surrounding Rabi sowing raise supply-side concerns. Consequently, timely supply-side interventions by the government are pivotal to ensuring effective containment of inflationary pressures within the food basket.
Going ahead, a favourable base effect will persist throughout Q4FY24, helping absorb potential upward risks to price pressures to a certain extent. Moreover, the arrival of fresh crops into the market from January to March is expected to ease price pressures in the food basket. For the full fiscal year, we expect inflation to average at 5.4%.
