Indian & global macroeconomic weekly

In the local economic news, even as the overall consumer inflation for January eased to a 16-month low of 4.09 per cent in January from 4.59 per cent in December, core inflation (a better measure of medium-term inflation), which excludes the effects of volatile food and fuel prices, remained higher at 5.75 per cent for the month.  Jayanth Varma (a member of RBI’s Monetary Policy Committee) had commented in December that a few large companies have been able to increase prices recently, leading to this higher core inflation. While the core inflation number for January remains within RBI’s inflation target range of 2 per cent to 6 per cent, the central bank may face challenges in adhering to the inflation target in FY 2022.  

In other news, the recovery in industrial production continued in December albeit at a slower pace. The Index of Industrial Production (IIP) expanded by 1 per cent in December after contracting 1.9 per cent in November. Notably, consumer durables grew 4.6 per cent even as capital goods (a measure of private investment demand) decreased by 0.6 per cent during the month.  

On the global front, renewed concerns about higher inflation drove a sell-off in US government bonds with a benchmark of 10-year yields breaching the 1.30 per cent level mid-week on stronger retail sales growth of 5.3 per cent in January (ahead of expectations of growth of 1.2 per cent). Yields did settle lower on Thursday, giving higher-than-expected first time weekly jobless claims of 8.61 lakh for the week ending February 12.  The overall upward move in yields led to the souring of equity market sentiment for the week.