India's retail inflation surges to 7.79% in April, IIP grows 1.9% in March

India's retail inflation surged near an 8-year high to 7.79 per cent in the month of April, breaching the upper limit of the Reserve Bank of India's (RBI's) target range for the fourth consecutive time, according to data released by the Ministry of Statistics and Program Implementation on Thursday. The surge is largely driven by rising fuel and food prices. 

The RBI has been mandated by the government to keep retail inflation at 4 per cent with a margin of 2 per cent on either side.

The CPI-based inflation stood at 6.95 per cent in March, 6.07 per cent in February and 6.01 per cent in January. The inflation rate stood at 4.23 per cent in April 2021.

Inflation in the food basket rose to 8.38 per cent in April from 7.68 per cent in the preceding month and 1.96 per cent in the year-ago month.

The local price of oil, India's biggest import, has also been subject to upwards pressure from the roughly 4 per cent drop in the rupee this year, with Indian rupee touching record low against US dollar on Monday.

The elevated price outlook pushed the RBI - which only recently changed its focus to price stability from growth - to hike its repo rate for the first time since 2018, lifting it 40 basis points to 4.40 per cent in a surprise unscheduled meeting last week, with more expected to follow. 

The move came just ahead of the US Federal Reserve's 50 basis point rate hike later the same day.

"April CPI inflation came a notch above expectations due to headline items such as food, cooking gas and petrol. Within food it is primarily vegetables and cereals. Inflation also picked-up in most core CPI components, particularly clothing, footwear and household goods & services," said Prithviraj Srinivas, chief economist, Axis Capital.

"This is the highest CPI print since May 2014 (8.3%) nearly eight years ago. Faster withdrawal of monetary accommodation is called for and justified. The RBIs off-cycle rate hike last week was prescient," he added.

Sakshi Gupta, Principal Economist, HDFC Bank, said, "Overall, inflation readings are expected to remain above 7% over the course of the next 6-7 months. The RBI is likely to respond with a rate hike at the June meeting by 25-35 basis points (bps) and follow it up with further rate hikes taking the repo rate to pre-pandemic levels of 5.15%."

Meanwhile, the country's industrial output, measured by the Index of Industrial Production (IIP), decelerated at 1.9 per cent in March compared to 24.2 in the same month a year earlier, NSO stated.

The manufacturing sector's output grew 0.9 per cent in March 2022.

Mining output climbed 4 per cent, and power generation increased 6.1 per cent.

During 2021-22, the IIP grew 11.3 per cent as against an 8.4 per cent contraction in 2020-21.

Industrial production has been hit due to the coronavirus pandemic since March 2020, when it had contracted 18.7 per cent.

It shrank 57.3 per cent in April 2020 due to a decline in economic activities in the wake of the lockdown imposed to curb the spread of coronavirus infections.