Inflation rises, industrial growth shrinks
India’s inflation, as measured by the consumer price index (CPI) moved to 7 per cent in August, as revealed by government data. This is higher than the year-on-year value, the CPI inflation in August 2021 being 6.9 per cent, according to data released by the National Statistical Office (NSO) on Monday, September 12.
It is also higher than the 6.71 per cent measured in July, thus also halting a three-month downward trend.
The inflation is also higher than the Reserve Bank of India-recommended limit of 6 per cent (between 2 to 6 per cent is the recommended comfort zone) for the eighth month in a row.
The high inflation is mostly the result of high food prices, as food items account for nearly half of the CPI basket. Food inflation soared to 7.62 per cent in august, up from 6.75 per cent in July. And droughts due to the extreme heat wave and below-normal rainfall in various places are the culprits for the rising food prices.
Those are the food-related reasons. But inflation, in general, has been rising in recent times across the globe, the most important reasons being rise in consumer demand from households due to the pandemic, disrupted supply chains, also due to the pandemic and high crude oil prices, besides food prices. Therefore, the higher demand but lower production or lower supply is leading to inflation. The pandemic has caused a large number of micro, small and medium enterprises (MSME sector) to collapse, causing disruption in supply chains.
The rise in inflation is a global phenomenon, but it is being more acutely felt in India as here millions live in abject poverty.
Another troubling factor to be considered is industrial growth (as measured by the Index of Industrial Production (IIP)). The growth (as compared to the previous month) in IIP tumbled to just 2.4 per cent in July, from the 12.3 per cent in June, also announced by the NSO on Monday.
Regarding IIP, while the manufacturing sector’s output and power generation grew by 3.2 per cent and 2.3 per cent, respectively, in July, the mining sector’s output contracted by 3.3 per cent, likely caused by the excess rainfall during the month. But also, the power sector’s month-wise growth was measly, being 11.1 per cent a year ago (July 2021), while the mining sector saw a growth of 19.5 per cent a year ago.
The July IIP growth figure was only 2.1 per cent higher than in July 2019, which was the last pre-covid level for the month.
