Retail inflation zooms to 6%, factory output picks up pace

New Delhi, Aug 12: Consumer price inflation scaled a 23-month peak of 6.07% in July as retail food inflation rose to its highest since August 2014 due to an intense and prolonged summer, showed official data released on Friday. Industrial production, however, rose 2.1% in June from a year earlier, its fastest pace since October last year. Analysts, however, reckon a good monsoon would ease inflationary pressure in the coming months and boost rural demand, brightening growth prospects.

“Although consumer price inflation has crossed the upper threshold of the 2-6% of the Reserve Bank of India’s inflation target band, the July print may well emerge as the last of the worrying prints, with a favourable base effect as well as the improved monsoon and kharif sowing dynamics pointing to a easing of food inflation in the coming months,” said Aditi Nayar, senior economist at Icra.

Core inflation, a key input for monetary policymaking, remained rather subdued at 4.6% in July, against 4.5% in the previous month. Food inflation rose 8.35% in July, against 7.79% in June.

However, economists, including Nayar, have added that with uncertainty regarding the final structure of the goods and services tax (GST) rates and their impact on inflation still looming, it is difficult tog aug et he extent to which the proposed monetary policy committee may cut the benchmark lending rate in 2017.

Although the index of industrialproduction (IIP) saw arise in June from a revised 1.1% in May, capital goods output, a proxy for fixed corporate investment, continued to contract, recording a 16.5% fall in June from a year earlier. In the first quarter of this fiscal, capital goods output sh rank 18%, compared with a 2% rise a year ago.

However, analysts view the growth, albeit a meagre 1%, in consumer non-durables in June after a gap of seven months as “enthusing”. An above-normal monsoon this year, as predicted by the weather office, and good paceof kharif sowing so far (area under pulses has crossed the year-ago level) suggest a pick-up in rural demand may be on the anvil, as the prospect of a better farm harvest after two successive years of drought is brighter. Consequently, consumer non durables segments may also see a pick-up in the second half of the current fiscal. Overall, consumer goods segment rose 2.8%, aided by 7.2% increase in durables output.

“.. categories with inflation higher than 6% accounted for only 23% weight, comprised by food items major ly. Therefore, CR IS IL Research believes that the increase in the consumer price is transitory. A normal monsoon, as forecast by the India Meteorological Department, and proactive steps taken by the government to manage food supply will rein in food inflation this fiscal,” CRISIL Research said.

Electricity generation rose 8.3% in June, compared with 4.7% in the previous month, thanks to a favourable base and an uptick in the growth of thermal electricity generation and narrowing contraction of hydroelectricity generation. Mining rose 4.7%, against 1.4% in May. However, However, manufacturing continued to falter, with a meagre expansion of 0.9%, slightly better than 0.6% in the previous month.