CPI inflation hits 5% in June, IIP growth slows to 3.2% in May
NEW DELHI: India’s factory output growth slowed to a seven-month low in May while retail inflation quickened to a five-month high in June, signalling a worsening macro-economic environment.
Data released by the statistics department showed the index of industrial production (IIP) grew at 3.2% in May compared with a revised 4.8% growth a month ago while Consumer Price Index (CPI) based inflation accelerated by 5% in June against 4.87% in the preceding month.
A surge in crude oil price, weakening rupee and increase in minimum support price (MSP) of summer-sown crops by the government are further expected to put upward pressure on retail inflation.
India Ratings and Research estimates that the hike in MSP for the 2018-2019 season will push up retail inflation by 70 basis points. One basis point is 0.01%.
While the monsoon has gained pace earlier than expected, the nationwide rainfall deficit in the season stands at 8% till Thursday. Although the Indian Meteorological Department has projected a normal monsoon, its distribution and intensity in July will be crucial to kharif output, which in turn, will impact food inflation.
The Reserve Bank of India (RBI) on June 6 raised the repo rate by 25 basis points to 6.25%— the first rate hike in more than four years -- and analysts do not rule out a further hike next month in its policy review on 1 August.
“RBI would be watching the CPI print closely and an adverse report on monsoon or a further spike in oil prices could hasten a rate hike in the coming policy. Otherwise it would be a pause followed by a rate hike towards the end of calendar 2017,” said Madan Sabnavis, chief economist at Care Ratings Ltd.
The slowing of IIP growth in May was led by the manufacturing sector despite electricity and mining output growing faster than April. In terms of industries, 10 out of the 23 industry groups in the manufacturing sector showed negative growth indicating the broad-based nature of the slowdown.
Srishti Choudhary contributed to this story.