Retail inflation at record low, industrial production at 4-month high

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New Delhi: Retail inflation fell to a record low of 3.78 percent in July and industrial production hit a 4-month high of 3.8 percent in June, which may bring cheer to investors and add to the clamour for interest rate cut by RBI.

Retail inflation rose by 3.78 percent year-on-year in July, slowest pace on record, helped by lower food prices of certain items including of vegetables, fruits and cereals.

At the same time, factory output, as measured by the Index of Industrial Production, expanded by 3.8 percent in June on sharp rebound in demand for consumer goods. IIP was however lower compared to 4.3 percent in June last year.

The data came today admist a political logjam in Parliament that has stalled key reform measure of GST that will create one of the world’s largest single markets.

The twin macro-economic indicators strengthen government and industry’s call to Reserve Bank Governor Raghuram Rajan to cut interest rates. Rajan kept rates unchanged this month to contain inflation, third-highest rate in Asia.

Finance Minister Arun Jaitley said the growth in manufacturing is a positive development for the economy. “It shows that the economy is firmly on the growth path.”

A top official at the ministry said: “We have maintained that high interest rates are hurting the economy. There is case for interest rate to come down sharply.”

CII Director General Chandrajit Banerjee said, “Easing of the July retail inflation…Should motivate the RBI to resume its rate easing cycle in its next monetary policy especially as the capital goods sector is in the red indicating that new business orders are expanding at a notably slower pace as high interest costs are adversely impacting investment decisions.”

According to the data released by Central Statistics Office, the IIP growth for May has been revised downwards to 2.5 percent from the earlier estimate of 2.7 percent.

For the first quarter (April-June) of the current fiscal, the industrial production is at 3.2 percent, as compared to 4.5 percent growth in the year-ago period.

Manufacturing, which constitutes over 75 percent of the index, grew at 4.6 percent in June compared to 2.9 percent in the same month last year. During the April-June period, the sector has grown 3.6 percent, compared to 3.9 percent in the year-ago quarter.

In terms of industries, 16 out of 22 groups in the manufacturing sector have shown positive growth in June, as compared to the same month of last fiscal.

As for food inflation, as measured on Consumer Food Price Index for July, it fell to 2.15 percent as against 5.48 percent recorded in the previous month.

Commenting on the data, Assocham Secretary General D S Rawat said: “Uncompetitive interest rates affect the credit availability and its cost to the corporates, especially the SME sector.”

As per CSO numbers, output of capital goods, a barometer of investment, contracted by 3.6 percent compared to 23.3 percent growth in the same month last year. For the April-June period, the capital goods production is up at 1.5 percent, compared to 13.7 percent growth in the year-ago period.

The mining sector output contracted by 0.3 percent in June compared to 4.8 percent growth in the same month of last fiscal. In the April-June period it has grown at 0.7 percent, compared to 2.9 percent in same period last fiscal.

Power generation growth too slowed to 1.3 percent in June compared to 15.7 percent in the same month a year ago. During April-June, it grew at 2.3 percent compared to 11.3 percent in the three month period a year ago.

Overall consumer goods output grew by 6.6 percent in June compared to a contraction of 8.8 percent in the month a year ago. During April-June the consumer goods output grew by 2.4 percent compared to a decline in production by 3.2 percent.

The consumer durables goods output grew at 16 percent in June compared to a contraction of 23.3 percent in the month a year ago. In April-June quarter, the segment has grown by 3.7 percent compared to a contraction of 9.5 percent in the same period last year.

The consumer non-durable goods grew by 1.3 percent in June compared to 1.9 percent growth in the same month a year ago. During April-June, the output of these goods grew by 1.6 percent compared to 1.3 percent a year ago.

Prices of vegetables fell sharply during the month from a year ago, with inflation printing a negative 7.93 percent. Fruits also turned cheaper by 1.45 percent during the month compared to the same month last year.

However, prices of protein-rich items such as pulses remained higher as inflation rose to 22.88 percent. Also, meat and fish prices turned costly by 7.02 percent.

Among others, sugar and confectionery prices contracted by 12.30 percent.

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