India’s Retail Inflation Surges to 4.81% in June; May IIP Rises to 5.2%

What’s in the News:

• India’s retail inflation experienced a surge of 4.81% in June, ending a four-month decline, as food prices increased due to uneven monsoon rains and supply disruptions.
• The Consumer Price Index (CPI)-based inflation was 4.31% in May, and food inflation rose to 4.49% in June.
• The Reserve Bank of India (RBI) is tasked with maintaining retail inflation within the range of 2% to 6% and will likely keep interest rates unchanged.

Reasons for Inflation Surge:

• Uneven monsoon rains damaged perishable food crops and hindered the movement of goods, leading to shortages of essential cooking ingredients like tomatoes, chillies, and onions.
• Food inflation, accounting for nearly half of the overall consumer price basket, increased to 4.49% from 2.96% in May.
• Vegetable prices rose by 12% on a month-on-month basis in June.

Key Points and Findings:

• The current inflation rate remains within the RBI’s comfort level of below 6%.
• The RBI considers the CPI while making monetary policy decisions, and the next policy review is scheduled for early next month.
• The RBI had previously projected retail inflation for the current fiscal year to average at 5.1% with June quarter inflation at 4.6%.
• India’s industrial production, measured by the Index of Industrial Production (IIP), increased to 5.2% in May, mainly due to growth in the manufacturing and mining sectors.
• Manufacturing output grew by 5.7% in May 2023 compared to 20.7% expansion in the previous year.
• Power generation rose by 0.9% in May, while mining output increased by 6.4%.
• The capital goods segment grew by 8.2% in May, while consumer durables output rose by 1.1%.
• Consumer non-durable goods output increased by 7.6%, and infrastructure/construction goods posted a growth of 14%.
• The output of primary goods grew by 3.5%, and intermediate goods output rose by 1.6% in May.
• During April-May period of fiscal year 2023-24, the growth in IIP was 4.8%, down from 12.9% in the corresponding period last year.

Retail Inflation vs. Wholesale Inflation in India:

	Retail Inflation	Wholesale Inflation
Definition	The rate at which the general level of	The rate at which the wholesale prices of
	prices for goods and services rises,	goods in bulk or at the wholesale level
	affecting the purchasing power of	increase or decrease over a given period
	consumers
Measurement	Consumer Price Index (CPI)	Wholesale Price Index (WPI)
Basket of Goods	Includes essential goods and services	Includes goods at the wholesale level,
	purchased by consumers	excluding taxes and retail margins
Components	Food, housing, transportation, healthcare,	Primary articles, fuel and power,
	education, etc.	manufactured products
Importance	Directly impacts consumers’ cost of	Provides insights into inflationary
	living and purchasing power	pressures faced by producers and businesses
Impact	Higher inflation reduces purchasing power	Higher wholesale inflation may lead to
	and can affect economic growth increased costs for businesses and
		potentially higher retail prices for goods
Policy Considerations	Central banks often use retail	Wholesale inflation data is used by the
	inflation to guide monetary policy	government and policymakers to monitor
	decisions, such as interest rates	overall price trends and make informed
		decisions regarding economic policies

Index of Industrial Production (IIP):

Key Information
Definition	An index that measures the
	performance of various
	industrial sectors in the
	Indian economy
Calculated by	Central Statistical
	Organisation (CSO)
Frequency	Monthly
Latest Update (May 2023)	IIP growth: 5.2%
Base Year	2011-12
Core Industries Represented	Eight core sectors
Core Industries (Weight in IIP)
Coal	10.33%
Electricity	19.85%
Crude oil	8.98%
Cement	5.37%
Natural gas	6.88%
Steel	17.92%
Refinery products	28.04%
Fertilizers	2.63%
Total	100%
Base Year Revisions	9th revision since 1950
	First base year: 1937
Items Introduced (Examples)	Refined palm oil, surgical
	accessories, cement clinkers
Items Removed (Examples)	Chewing tobacco, toothbrush,
	calculators, fans, watches,
	pens

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