India’s Consumer Price Index (CPI)- based inflation rose to a three-month high of 5.55% in November from 4.87% in October, as a spike in prices of onion led a rather broad-based rise in food inflation, according to data released by the National Statistical Office (NSO) on Tuesday. However, the latest print being at the lower end of the forecasts by analysts and the continued moderation of core inflation to a 44-month low of 4.1%, would offer comfort to the Reserve Bank of India (RBI).

The government has recently taken a host of steps to boost supply of food items, including wheat, sugar and onion.

Separate data released on Tuesday showed factory output, measured by the Index of Industrial Production (IIP), rose to a 16-month high of 11.7% in October from 6.2% in September, aided by a favourable base, and a rise in manufacturing output amidst festive demand.

Inflation in onions was at a 38-month high of 86.46% in November, which pushed vegetables inflation to 17.7% during the month from 2.70% in October. The massive increase in onion prices are a consequence of fresh kharif harvest arriving late in the market.

However, the prices of onions are likely to cool off towards December end partly aided by ban on the exports of the staple vegetable imposed last week, easing inflationary pressures. As on Tuesday, retail prices of onion were down 6% on month.

Core inflation, which is more amenable to demand management by the RBI, eased from 4.3% in October. The MPC last week had mentioned core disinflation has been “steady”, indicative of the impact of past monetary policy actions.

Demand conditions in the country have stayed sluggish in the past few months mainly on the rural side. Still, the higher food prices have kept rural inflation high. In November, CPI rural inflation was at 5.85%, while CPI urban inflation was 5.26%. CPI rural inflation has remained above urban inflation for five consecutive months.

Food inflation during November shot up to 8.70% from 6.61% in October.

“Kharif harvest arrivals and progress in rabi sowing together with El Nino weather conditions need to be monitored. Adequate buffer stocks for cereals and a sharp moderation in international food prices, along with pro-active supply side interventions by the government may keep these food price pressures under check,” the MPC had said.

The inflation rate of ‘cereals and products’ eased to 10.27% in November from 10.65% in October, and that of ‘pulses and products’ rose to 20.23% from 18.79%. ‘Spices’ inflation fell to 21.55% in November from 22.76% a month ago. These three-subgroups have recorded double digit inflation rates in all the months of 2023. And collectively these account for 15% of the CPI.

“Persistently elevated inflation in certain food categories such as cereals, pulses pose a risk of potential generalisation of price pressures,” said Rajani Sinha, chief economist, CareEdge.

An unfavourable base is further expected to push CPI inflation higher to around 5.8-6% in December,” she noted.

Typically IIP rises sequentially in October from September, but in October 2022, it had contracted 3.2% on month, making the base favourable. This time in October, IIP rose 1.8% on month, at a rate slightly higher than a 10-year average of 1.3%.

The year-on-year growth rates of mining, manufacturing, and electricity stood at 13.1%, 10.4%, and 20.4%, respectively, in October. Within manufacturing, output of only four of the 23 components contracted year-on-year during the month, while in September nine had contracted.

Within the use-based category, output of all six groups rose year on year, aided by base effects. But sequentially, output of capital goods, consumer durables and consumer-non durables declined.

Both consumer durables and non-durables are indicators of demand conditions, and the month-on-month fall in output depicts sluggishness.

“Notwithstanding the healthy YoY growth, the index values for consumer durables and non-durables in October 2023 lagged their October 2021 levels, when the festive season had a similar onset, suggesting that caution should be employed while interpreting the higher-than-expectated IIP expansion,” said Aditi Nayar, chief economist, ICRA.

ICRA expects the YoY IIP growth to slow down sharply to 2-4% in November, driven by the fewer number of working days amid the late onset of the festive season in 2023 as compared to 2022, as well as an unfavourable base.

“Despite healthy consumer durables yoy growth in October 2023, the weakness in the current consumption demand becomes apparent when we see that the output of consumer durable in October 2023 is only 1.1% higher than February 2020,” said Sunil Kumar Sinha, principal economist at India Ratings and research.