IIP Soars 11.7% in October; Retail Inflation Climbs to 5.55% in November

India witnessed contrasting trends in its economic indicators in October and November, with the Index of Industrial Production (IIP) surging to a 16-month high while retail inflation experienced an uptick, reaching a three-month high. These developments have significant implications for GDP projections and monetary policy.

1. IIP Hits 16-Month High in October

The IIP recorded an impressive 11.7% year-on-year growth in October, marking a substantial increase from the 6.8% reported in September.
Key contributors to this growth were the electricity (20.4%), mining (13.1%), and manufacturing (10.4%) sectors, surpassing Bloomberg’s forecast of 10.5%.

2. Impact on GDP Estimates

The robust performance of the IIP is expected to influence the first advance estimates of the gross domestic product (GDP) data for 2023-24, scheduled for release on January 5. This data will precede the Interim Budget for FY25, set to be presented on February 1.

3. Retail Inflation Rises in November

Retail inflation, measured by the Consumer Price Index (CPI), increased to 5.55% year-on-year in November, up from 4.87% in October.
The upward trajectory was attributed partly to a seasonal spike in vegetable prices, contributing to a three-month high in overall inflation.

4. Inflation Drivers

Food inflation saw a notable rise, reaching 8.7% in November, with vegetable prices accelerating sharply by 17.7%.
Other contributors to increased inflation included fruits (10.95%), pulses (20.23%), and sugar (6.55%).

5. Sector-wise Performance in IIP

Among the 23 manufacturing industries, only four, including apparel, wood, computers, and furniture, witnessed contraction in October.
Strong double-digit growth was observed in primary goods (11.4%), capital goods (22.6%), infrastructure goods (11.3%), and consumer durables (15.9%), indicating a revival in both urban and rural demand.

6. Core Inflation and Monetary Policy

Core inflation, excluding volatile food and fuel components, stood close to 4% in November.
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously kept the repo rate unchanged at 6.5% for the fifth consecutive policy review, with the central bank retaining its forecast for retail inflation at 5.4% for FY24.