Aug Inflation rose 3.36%, IIP a mild 1.2% in July
RBI unlikely to cut rates in its next review
India’s Index of Industrial Production (IIP) grew at 1.2% in July from a contraction of 0.2% a month ago, while consumer price index-based inflation rose for the second consecutive month, by 3.36% from 2.36% in July, as food inflation turned positive after three months of contraction, data released by the Central Statistics Office showed on Tuesday revealed.
NEW DELHI: India’s consumer inflation rate rose to a five-month high in August, while factory output remained sluggish, government data showed on Tuesday, suggesting the broader economy has yet to recover from the hit it took from the demonetisation decision on November 8 last year.
At 3.36% in August , the consumer inflation rate remains moderate, but retail prices are seen rising as demand picks up ahead of the festive season and food prices spiking because of drought-like situation in states. Food grain production is expected to fall this year following a decline in areas under plantation, following unfavourable weather conditions.
Seasonal monsoon rains have caused damage to some crops and hit movement of goods.
“Looking ahead, price pressures are set to rise further,” said Shilan Shah, an economist at Capital Economics in Singapore.
Retail food inflation, which accounts for about 54% of the consumer price index, rose 1.52% in August after prices contracted in the previous three months.
The rise in August was higher than the 3.20% forecast by economists in a Reuters poll. Inflation rose to 2.36% in July, after falling for three straight months.
Last month, the RBI cut its main policy rate by 25 basis points to 6%, the lowest since 2010, while keeping its policy stance at “neutral”.
Analysts said a rise in inflation for two straight months has reduced the chances of another rate cut by the Reserve Bank of India, which has a central inflation target of 4%.
“We are of the opinion that RBI will not deliver any rate cut this calendar year,” said Hitesh Jain, an analyst at IIFL Wealth Management.
The monetary policy committee (MPC) of the central bank had warned prices could start accelerating soon, reflecting caution, despite pressure to cut more aggressively after consumer inflation remained below its central target since October.
Latest data on industrial production, also released on Tuesday, showed industrial growth marginally improved to 1.2% in July compared to a contraction of 0.2% a month earlier. It was, however, sharply lower compared to 4.5% growth seen in July last year.
During April-July, IIP grew 1.7%, down from 6.5% in the same period last year.
Growth of the manufacturing sector, which makes up 77.6% of the index, decelerated sharply to 0.1% in July compared to 5.3% in the same period of 2016.
Output of capital goods -- a proxy for infrastructure investments in the country -- contracted 1% in July as against a growth of 8.8% in the year-ago period.
Consumer durable goods met with similar fate, with production declining 1.3% as against a nominal growth of 0.2% a year earlier.