Key Insights from July CPI and June IIP:
- Headline Inflation: The headline inflation rate dropped below the 4% target, primarily due to a favorable base effect. However, food prices remained a concern, with another significant increase in vegetable prices, as expected. The revision of mobile tariffs also contributed to higher services inflation. Despite the lower overall inflation, driven by the base effect, the RBI’s monetary policy stance is unlikely to be influenced, as inflationary pressures remain elevated.
- CPI Performance: The Consumer Price Index (CPI) eased more than expected to 3.5%, compared to 5.1% last month and 7.4% a year ago. On a sequential basis, inflation rose by 142 basis points (bps) compared to 133 bps last month, largely driven by food inflation, which increased by 247 bps compared to 269 bps last month. This was mainly due to a 14% month-over-month rise in vegetable prices for the second consecutive month.
- Core CPI: Core CPI increased to 3.3% from 3.1% in the previous two months, after a year of consistent decline. The sequential pace of core inflation rose to 56 bps from 11 bps last month.
- Price Increases: Prices rose across most categories except fuel, which saw a slight decline of -0.2%. Housing, clothing, and pan & tobacco prices increased by 0.5%, 0.2%, and 0.2%, respectively.
- Services Inflation: The pace of services inflation accelerated to 0.8% month-over-month, up from 0.3% in the previous two months. The most significant price increase was in transport and communication (1.8%), driven by a mobile tariff hike. Education prices continued to rise by 0.9%, while medical care, personal care, and household requisites saw modest increases of 0.2%-0.3%.
- IIP Growth: Industrial production growth slowed to 4% year-over-year, down from 6% last month and 4% in June 2023. Mining, manufacturing, and electricity sectors registered year-over-year growth of 10%, 3%, and 9%, respectively. Of the 23 industries, 14 saw year-over-year growth, with electrical equipment, computers & electronics, and other transport equipment being the major contributors to the IIP.
- Sectoral Performance: Among use-based segments, consumer durables (9%) led the growth, followed by primary goods (6%), infrastructure goods (4%), intermediate goods (3%), and capital goods (2%). Consumer non-durables contracted by -1%. Sector-wise, 14 out of 23 sectors showed year-over-year growth, with notable increases in electrical equipment (28%), computers & electronics (16%), and other transport equipment (9%). Declines were seen in tobacco products (-11%), pharmaceuticals (-3%), paper products (-2%), textiles (-2%), and beverages (-1%).
Summary:
- CPI: Inflation eased to 3.5% in July, primarily due to a favourable base, but sequentially, it rose by 142 bps. Core CPI also saw an uptick, driven by food and services inflation.
- IIP: Industrial production growth slowed to 4% year-over-year, with mixed performance across sectors.
