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Published on 12/07/2018 5:44:03 PM | Source: Dion Global Solutions Ltd.

Factory growth slips to 7-month low; retail inflation at 5%

Posted in Industry News| #India #Economy #Inflation

Industrial production slipped to a seven-month low of 3.2 per cent in May due to sluggish performance of manufacturing and power sectors, while retail inflation continued to remain firm in June on costlier fuel, according to two sets of official data, reported PTI. The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, which would be meeting later this month to decide on the next bi-monthly interest rate review, would be factoring these key macro-econonic data.

The data was released after close of stock markets, which witnessed the benchmark BSE Sensex ending at a lifetime high of 36,548.41. The rupee too surged by 20 paise to end at a one-week high of 68.57 against the US dollar buoyed by a steep fall in crude prices and a strong rally in equity markets. Sunil Kumar Sinha of India Ratings and Research (Fitch Group) said factory output growth has been declining in each successive months since November 2017 with the exception of April 2018. "The more disappointing part of the unfolding factory output story is weakness in manufacturing sector," he outlined.

The manufacturing sector, which constitutes 77.63 per cent of the index, grew by just 2.8 per cent in May, marginally up from 2.6 per cent in the corresponding period last year. Amid sluggish factory output numbers, the Consumer Price Index-based inflation spiked to a five-month high of 5 per cent in June on costlier fuel, despite easing food prices, reducing possibilities of an interest rate cut by the Reserve Bank in its upcoming monetary policy review. "June inflation number is the likely peak we have seen in this FY (fiscal year). Subsequent prints are expected to average below 4.5 per cent", Yes Bank Chief Economist Shubhada Rao said. The core inflation remains elevated that may keep RBI on guard, she observed. Economist with ratings firm Icra Aditi Nayar expects the MPC to increase the repo rate by another 25-50 percentage points in 2018-19, depending on the extent to which various inflationary and fiscal risks materialise. RBI had raised its key short-term benchmark lending rate (repo) by 0.25 per cent to 6.25 per cent after its last MPC meet in June.

The rate was raised after almost four-years on inflationary concerns. The MPC will be meeting for three-days from July 30 and announce its decision on the third bi-monthly policy of the current fiscal on August 1. The government has mandated the Reserve Bank to keep inflation at 4 per cent (+/- 2 per cent). -- Sluggish manufacturing, power drags factory output -- According to the data released by the Central Statistics Office (CSO), the factory output growth decelerated to a seven-month low of 3.2 per cent in May mainly due sluggish performance of manufacturing and power sectors coupled with poor offtake of fast moving consumer goods (FMCG). The IIP growth for April too was revised marginally down to 4.8 per cent from previous estimates of 4.9 per cent. The index had expanded by 2.9 per cent in May last year.

The previous low of industrial production growth was 1.8 per cent in October 2017. During April-May this fiscal, the IIP recorded a growth of 4.4 per cent as compared to 3.1 per cent in same period year ago. Power generation growth decelerated sharply to 4.2 per cent during the month as compared to a high of 8.3 per cent year ago. The mining sector output recorded an impressive growth of 5.7 per cent in May as against 0.3 per cent in May last year. The FMCG sector was the worst performer among the user based goods segment, as its output declined by 2.6 per cent as against a growth of 9.7 per cent year ago. -- Retail inflation reaches 5 pc despite weak food prices -- The CSO data on Consumer Price Index (CPI) showed that retail inflation spiked to a five-month high of 5 per cent in June on costlier fuel, despite easing food prices. CPI-based inflation is on the rise since March. The inflation was at 4.87 per cent in May. It was 1.46 per cent in June 2017.

The earlier high was in January this year at 5.07 per cent. The rate of price rise in the food basket was 2.91 per cent, compared to 3.1 per cent in May, due to slower rate of price rise articles such as fruits, vegetables and cereals. The inflation in fuel and light category, however, went up to 7.14 per cent as against 5.8 per cent in May. The CSO said the price data for CPI inflation were collected from selected towns by the Field Operations Division of NSSO (National Sample Survey Office) and from selected villages by the Department of Posts.