FACTORY OUTPUT, EXPORTS DIP; RETAIL INFLATION INCHES UP

NEW DELHI: Here’s more proof that a turnaround in the economy may still be some distance away.

India’s factory output contracted by 1.6% in May, while exports contracted by 4.6% in June and retail inflation inched up to 9.87% in June, reversing a three-month declining trend.

The latest set of data are likely to determine the Reserve Bank of India’s (RBI’s) next move in its quarterly policy review due later this month amid a chorus of demand from business leaders to slash lending rates to arrest the economic slowdown.

Manufacturing output, which accounts for about 75% of India’s total industrial production, fell by 2% in May pulling down the overall industrial output to (-1.6%) — the lowest in 11 months.

Consumer price index based inflation — a more realistic index because it measures shop-end prices — inched up from 9.31% in the previous month driven by costlier vegetables and food items.

The rupee, which has slid more than 13% since May, will likely fan inflation by knocking up prices of imported goods including crude oil. Costlier fuel will raise the prices of most goods, making the job that much more difficult for the RBI to slash lending rates.

The index of industrial production had expanded 1.9% in April. Retail inflation measured by the consumer price index had grown 9.31% in April.

Consumer durables output fell 10.4% in May against 9.7% a year ago, as spending on television, refrigerators and cars continue to remain muted, squeezed by high prices and low income growth.

The fact that automobile sales contracted 9% June — the eighth month of decline — supports the view that erosion in purchasing power, due to persistently high inflation and interest rates, is denting discretionary spending.