Data on Retail Inflation and Factory Output

• 13 Jan 2021

Why in News

Separate data on retail inflation and factory output have been recently released by the Ministry of Statistics & Programme Implementation (MoSPI).

Key Points

• Retail Inflation:
  
  • Measured by the Consumer Price Index (CPI), eased to 4.59% in the month of December 2020.
  • The retail inflation for the month of November was 6.93%.
  • The December CPI data has come within the Reserve Bank of India’s (RBI) upper margin of 6%.
    
    • The government has mandated the central bank to keep retail inflation within the range of 4% with a margin of 2% on either side as per its inflation targeting.
    • CPI inflation has been above RBI’s upper bound inflation target of 4 +/-2% for more than 11 months.
  • RBI primarily factors in retail inflation while making its bi-monthly monetary policy.
    
    • In its bi-monthly monetary policy meeting in December 2020, the Indian central bank had kept its key interest rates unchanged (repo and reverse repo rates) and decided to maintain an ‘accommodative stance’ as long as necessary at least through the current financial year.
  • Causes of decline:
    
    • Decline in food prices: Inflation in the food basket eased to 3.41% in the month of December, down from 9.50% in November.
• Factory Output:
  
  • India’s factory output, which is measured in terms of Index of Industrial Production (IIP), witnessed a contraction of -1.9% during the month of November 2020.
  • The industrial growth so far in the fiscal year 2020-21 (April-November) has contracted -15.5%, compared to a 0.3% rise in the corresponding period in 2019.
  • Causes of Contraction:
    
    • Mining and Manufacturing sectors.
      
      • The mining sector saw a decline of -7.3% in November, while the manufacturing sector witnessed a fall of -1.7%.
      • However, the electricity sector grew 3.5%.
      • In November 2019, the manufacturing sector had witnessed a growth of 3.0%. During the same period, the mining sector had risen 1.9%, while the electricity sector had witnessed a fall of -5.0%.

Consumer Price Index

• It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
• The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.
• At present, India has five consumer price indexes (CPIs), three of which are working-class specific. These are:
  
  • CPI for Industrial Workers (IW).
  • CPI for Agricultural Labourer (AL).
  • CPI for Rural Labourer (RL).
  • These three indexes are compiled by the Labour Bureau in the Ministry of Labour and Employment.
  • CPIs AL and RL are used to fix minimum wages of agricultural labourers and rural unskilled employees.
  • The CPI-IW is mainly used for determining dearness allowance (DA) paid to central/state government employees and workers in the industrial sectors besides measuring inflation in retail prices, fixation and revision of minimum wages in scheduled employments.
    
    • The Base Year for CPI-IW has recently been changed to 2016 from previous 2001.
  • The Labour Bureau is also expected to bring out the new series of the CPI- AL/RL, which currently has the base year of 1986-87 by August 2021.
• The other two are CPI-Urban and CPI Rural. These two indexes are compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.
  
  • The combined rise in retail prices is captured by CPI Combined.

Index of Industrial Production

• The Index of Industrial Production (IIP) is an index that shows the growth rates in different industry groups of the economy in a fixed period of time.
• It is compiled and published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
• IIP is a composite indicator that measures the growth rate of industry groups classified under:
  
  • Broad Sectors:
    
    • Mining, Manufacturing, and Electricity.
  • Use-based sectors:
    
    • Basic Goods, Capital Goods, and Intermediate Goods.
• The eight core sector industries represent about 40% of the weight of items that are included in the IIP.
  
  • The eight core industries in decreasing order of their weightage: Refinery Products (28.04 %)> Electricity (19.85 %)> Steel (17.92 %) > Coal (10.33 %)> Crude Oil (8.98 %)> Natural Gas (6.88 %)> Cement (5.37 %)> Fertilizers (2.63 %).
• Base Year for IIP calculation is 2011-2012.

Source:IE