Price stability must be maintained even as steps to boost demand are taken
The latest retail inflation and industrial output data from the National Statistical Office (NSO) offer some relief from the pall of gloom cast by the relentless second wave of the COVID-19 pandemic. Provisional headline inflation slowed to a three-month low of 4.29% in April, helped by softer food prices and a statistical base effect. The rate using an imputed index for the year-earlier period was 7.22%. A separate NSO release showed March industrial output jumped by 22.4%, benefiting again from the fact that the Index of Industrial Production (IIP) had posted an 18.7% contraction in March 2020, when the economy was halted by the start of a nationwide lockdown. A closer look at the inflation data reveals a substantial cooling in the prices of cereals, milk and milk products, vegetables, and pulses and products. While both cereals and vegetables saw a deflationary trend widen to -2.96% and -14.2%, respectively, dairy products, which have the second-largest weight in the food and beverages category, also slid into deflation territory at -0.13%. And price gains in pulses, which had been bothering monetary policy makers by having been stubbornly stuck in the double digits over an 18-month stretch, decelerated into single digits to reach a 20-month low of 7.51%. The combined impact slowed inflation across the food and beverages group by more than 250 basis points to 2.66%.
Still, the same Consumer Price Index data also point to persistent price pressures that could potentially fan faster inflation in the coming months, especially at a time when the socio-economic burden of the crippling pandemic and the impact of the lockdown that several States are resorting to is yet to be fully gauged. Price gains in meat and fish quickened to 16.7% and was little changed at 10.6% in the case of eggs, while inflation in oils and fats accelerated almost 100 basis points to 25.9%. Transport and communication also remained in the double-digit range at 11.04%, despite benefiting from the virtual freeze in the pump prices of petroleum products that coincided with last month’s Assembly elections. Now, with global crude oil starting to firm again and local petrol and diesel prices resuming their upward trajectory, the prospect of haulage costs — for transporting goods from factory and farm gates — rising in the near term is very real. Add to the mix rising international commodity prices and the outlook for inflation gets even more cloudy. Industrial production numbers may also provide cheer only for a limited period, aided in no small measure by output having cratered in the first few months of the last fiscal. IHS Markit’s PMI survey for April showed new orders and output having slowed to eight-month lows, and with the pandemic-triggered factory shutdowns threatening supply disruptions, industrial production and inflation face challenges. Policymakers must stay vigilant to ensure price stability even as measures to bolster demand are the need of the hour.