5/13/2016
Retail inflation accelerates in April, IIP rises marginally in March ­ Print View ­ Livemint
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Fri, May 13 2016. 12 36 AM IST
Retail inflation accelerates in April, IIP rises marginally in
March
Retail inflation rose to 5.39% in April from 4.83% a month earlier, as food inflation rose to 6.21% from 5.39%
India’s factory output barely grew in March and retail inflation
accelerated in April, sending contradictory signals ahead of next
month’s monetary policy review by the Reserve Bank of India (RBI).
The Index of Industrial Production (IIP) rose 0.1% in March, the
Central Statistics Office (CSO) said on Thursday, against a 2%
increase in February that had raised hopes of a recovery after three
consecutive months of contraction.
Data released separately by the CSO showed that retail inflation
accelerated to 5.39% in April from 4.83% in March, as food inflation
quickened to 6.32% from 5.21% the previous month in the backdrop
of water scarcity in states such as Maharashtra.
While mining and manufacturing contracted by 0.1% and
1.2% respectively in March, electricity grew by 11.3%. Photo:
Mint
The two sets of data pose a dilemma to RBI—weak industrial output
warrants fresh stimulus but higher consumer price inflation requires it
to reduce liquidity in the banking system. That may prompt the central
bank to leave interest rates unchanged on 7 June.
“We were earlier expecting the RBI to cut the policy rates further, but
in light of the latest retail inflation figures, we expect the central bank to hold the rates,” said Dharmakirti Joshi, chief economist at rating
company Crisil Ltd.
RBI governor Raghuram Rajan cut the repurchase rate to 6.5% from 6.75% in April, taking to 1.5% the reduction in the benchmark rate since
January 2014. He also promised easy liquidity conditions.
The weak growth in factory output was on account of a 0.1% contraction in mining and a 1.2% decline in manufacturing output in March.
Electricity generation grew by 11.3%.
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5/13/2016
Retail inflation accelerates in April, IIP rises marginally in March ­ Print View ­ Livemint
Capital goods production—a key measure of investment activity in the economy—contracted sharply by 15.4% in the month, compared with
an 8.7% increase in the same month a year ago.
In the fiscal year that ended in March, industrial output grew 2.4%, lower than 2.8% in the previous year.
Investment demand remains weak despite the priority placed on manufacturing by the National Democratic Alliance government, expert
said.
“It appears that despite government focus on Make in India, the ground reality is different and any real and sustainable turnaround in
industrial output is not visible over the two quarters,” said Sunil Sinha, principal economist at India Ratings and Research Pvt. Ltd.
Consumer goods production grew 0.4% in March over a low base; in the same month a year ago, output had contracted 0.6%.
“...It needs to be seen whether a good monsoon will reinforce spending by households and the infrastructure push by the government
becomes stronger,” Care Ratings said in a statement; it expects industrial output to grow 4­5% in the fiscal year.
Basic and intermediate goods production grew 4% and 3.7% respectively.
Consumer non­durables production contracted 4.4% in the month, though consumer durables output grew 8.7%.
“Industrial output should do better in 2016­17 due to some impact of the interest rate cuts and higher wages of government employees,
which should help improve demand for products,” said Crisil’s Joshi.
Joshi said the unexpected increase in retail inflation was transitory and that with a normal monsoon and excess capacity in many industries,
retail inflation is likely to stay within 5% in the current financial year.
RBI is aiming to contain Consumer Price Index­based inflation to around 5% in 2016­17.
In its first bi­monthly monetary policy review on 5 April, RBI said it will “continue to watch macroeconomic and financial developments in the
months ahead with a view to responding with further policy action as space opens up”.
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