Re­tail in­fla­tion up a tad at 3.7% in Sept; Au­gust IIP at three-month low of 4.3%

Higher food, fuel prices drive up in­fla­tion, while slow­down in man­u­fac­tur­ing and min­ing im­pacts fac­tory out­put

The Hindu Business Line - - NEWS -

Re­tail in­fla­tion for the month of Septem­ber inched up a bit, while in­dus­trial pro­duc­tion for the month of Au­gust slowed down, two sets of Gov­ern­ment data re­leased sep­a­rately on Fri­day showed.

How­ever, the fear is that re­tail in­fla­tion is likely to go up in the com­ing months which might re­sult in hard­en­ing of pol­icy rate by the Mone­tary Pol­icy Com­mit­tee when it meets in De­cem­ber.

Re­tail in­fla­tion, as mea­sured by the Con­sumer Price In­dex, came in at 3.77 per cent in Septem­ber as against 3.69 per cent in Au­gust. The CPI in­fla­tion print is less than the tar­geted in­fla­tion rate of 4 per cent with (+/-) 2 per cent range. How­ever, the rate of core in­fla­tion (over­all CPI mi­nus volatile food and fuel) slipped to 5.8 as against 6 per cent in Au­gust. Slower in­fla­tion in food prices, which make up nearly half of In­dia's con­sumer price in­dex (CPI), has so far can­celled out rises in im­ported goods fol­low­ing the weak­en­ing ru­pee. Food in­fla­tion rose to 0.51 per­cent from a year ear­lier, against 0.29 per­cent in Au­gust.

Aditi Na­yar, Prin­ci­pal Econ­o­mist at ICRA, said the mild uptick in the CPI in­fla­tion in Septem­ber is in line with ex­pec­ta­tion of a sub-4 per cent print for that month. How­ever, “the rise in crude oil prices, the sharp weak­en­ing of the ru­pee, and the re­vi­sion in MSPs are likely to push up the head­line in­fla­tion above 4 per cent in the on­go­ing quar­ter. These risks, com­bined with the change in stance from neu­tral to cal­i­brated tight­en­ing, sug­gest a likely rate hike in the De­cem­ber pol­icy re­view,” she said adding there is ex­pec­ta­tion of fur­ther rate hikes of 25-50 bps (100 ba­sis points or bps means 1 per cent) dur­ing re­main­ing five-and- half months of the cur­rent fis­cal.

Dharmkirti Joshi, Chief Econ­o­mist with Crisil, felt that with the ex­pec­ta­tion of over­all healthy agri­cul­tural pro­duc­tion, food in­fla­tion should stay con­tained and weigh down con­sumer in­fla­tion. Even if the in­creased Min­i­mum Sup­port Prices trans­lates into com­men­su­rate in­crease in re­tail prices, con­sumer in­fla­tion can rise only 50 ba­sis points. That, in turn, means “the pol­icy rate could be on hold dur­ing the Mone­tary Pol­icy Com­mit­tee’s De­cem­ber re­view as well,” he said.

In­dus­trial pro­duc­tion

Mean­while, rate of in­dus­trial pro­duc­tion growth slowed down to three-month low of 4.3 per cent in Au­gust. Man­u­fac­tur­ing sec­tor out­put grew at 4.6 per cent in Au­gust com­pared to near 7 per cent in July, but 3.8 per cent in Au­gust a year ago. Sim­i­larly, min­ing sec­tor con­tracted by 0.4 per cent in Au­gust com­pared to a growth of 3.53 per cent in July and 9.3 per cent in the year-ago month. The cap­i­tal goods out­put growth de­cel­er­ated to 5 per cent dur­ing the month from a 7.3 per cent ex­pan­sion year ago.

Over­all, in terms of in­dus­tries, 16 out of 23 in­dus­try groups in the man­u­fac­tur­ing sec­tor have shown pos­i­tive growth dur­ing Au­gust com­pared to the cor­re­spond­ing month of the pre­vi­ous year.

Joshi said the slow­down in man­u­fac­tur­ing and min­ing weighed the In­dex of In­dus­trial Pro­duc­tion down 220 bps in Au­gust to 4.3 per cent over July. But in the com­ing months, man­u­fac­tur­ing should find sup­port from im­prov­ing ex­ports, Also, “the gov­ern­ment’s fo­cus on build­ing roads, houses and ru­ral in­fras­truc­ture will pro­vide im­pe­tus to ru­ral de­mand and, by ex­ten­sion, to in­dus­trial pro­duc­tion,” he said.

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