The burden of inflation varies across different income groups, as the share of spending on food, fuel and core categories differs across classes. During November 2021, the urban poor continued to face maximum inflation, says a research note.
In the report, rating agency CRISIL says, “Using the National Sample Survey Organisation data, we estimated the average expenditure patterns across three broad income groups like the bottom 20%, middle 60%, and upper 20% of the population and mapped them with the inflation trends. In November, the urban poor faced the highest inflation at 5.6%. In contrast, the lowest inflation was faced by rural poor at 4.1% in November.”
Food and fuel inflation constitute the highest share in their consumption basket for both rural and urban poor. The rating agency says that inflation in both these commodities was higher in urban than rural areas.
Inflation based on the consumer price index (CPI) moved up to 4.9% on-year in November compared with 4.5% in October. However, it was lower than the 6.9% printed in November 2020.
According to CRISIL, while the high-base effect from last year is helping, it is wearing out gradually, contributing to the pick-up in inflation. Rising food and core inflation also pulled the CPI up, while fuel inflation eased as crude prices moderated.
“With the impact of the high statistical base wearing off, CPI inflation is beginning to reflect the pressure built over the past few months. While non-food inflation had already been rising over the past few months, food inflation has also begun to tick up. We expect non-food inflation to remain under pressure in the coming months as commodity prices remain elevated, and producers passing through high input costs to consumers amid improving demand conditions,” the rating agency says.
During November, while food inflation remains benign, it could be swayed by items such as vegetables, which account for a significant share in CPI and experience high volatility in prices.
Further, CRISIL sees the rain shock to keep prices under pressure in the coming months. “That said, overall agriculture growth this fiscal is expected to remain healthy at 3%-3.5%, given the normal monsoon, the expectation of record kharif production, and adequate reservoir levels which bode well for rabi production,” it added.
During November, non-food inflation remains elevated. CRISIL says, “Although prices of crude oil, metals and costs of shipping have moderated over the past month, they remain significantly higher than last year. That, coupled with supply disruptions such as semiconductor shortages worldwide, has maintained pressure on producer margins. A pass-through of input-cost pressures to consumers, which was already happening in the past months, is likely to continue as domestic demand improves further.”
The Index of Industrial Production (IIP) printed at 133.7 in October, up from 128.2 in September. This represents a 3.2% on-year growth in October, compared with September’s 3.3%.
After declining sequentially in the previous two months, industrial activity switched gears and moved up in October, with both manufacturing and mining sectors recording higher output.
“The pick-up, however, remained uneven, pointing towards both supply-side bottlenecks, especially the shortage of semiconductors and subdued demand conditions, as reflected in a sequential decline in consumer durables output despite the festive season. High raw material prices, which are getting passed on to end-consumers, are also acting as a deterrent amid a fragile economic recovery,” the rating agency says.
Although the IIP was an improvement over the previous month, industrial activity was disappointing, particularly in the consumer goods space. “It was hit by a combination of weak private consumption demand and supply-side bottlenecks in the form of raw material shortages and higher input costs.
These factors are likely to create headwinds for industrial activity in the near term. Waning off of the base effect will also put downside pressure on annual IIP growth numbers in the coming months.”
“While the pace of vaccination continues to rise, the COVID situation has become uncertain once again with the emergence of the Omicron variant. The impending third wave, if severe, can impede the progress of industrial activity afresh,” the rating agency concludes.