Retail inflation eases, factory output jumps

Jun 13 2014, 03:35 IST
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SummaryAfter two straight months of contraction, industrial production grew the highest in just over a year at 3.4% in April

After two straight months of contraction, industrial production grew the highest in just over a year at 3.4% in April, while retail inflation eased from a three-month peak to 8.28% last month, adding to a seeming revival of optimism, reports fe Bureau in New Delhi.

Growth in manufacturing and capital goods scaled a nine-month peak of 2.6% and 15.7%, respectively, in April, indicating the start of a much-expected investment revival.

But a 5.1% drop in consumer goods output — the seventh successive month of contraction — reflected persistent weakness in private consumption. Investments seem to precede a revival in private consumption, the growth in which hit a 10-year low of 4.8% in FY14.

Moreover, slowing education, medical care and housing inflation in the consumer price index (CPI) and a drop in core retail inflation to its lowest since June at 7.7% reflect a softening demand scenario.

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Analysts believe the central bank is still unlikely to trim key policy rates in recent future until a clearer picture emerges on the impact of monsoon, predicted to be below normal in 2014.

Moreover, the threat of widespread dry spells after the weather office predicted a 33% chance of deficient monsoon rains of below 90% of the benchmark average this year worsens the risks of food inflation if the government doesn’t get its act together.

However, coming on the back of relatively good trade data — merchandise imports barring oil and bullion recorded first growth in ten months in May while exports rose 12% during the month — the latest growth in the index of industrial production stirs hopes of a factory revival.

Power generation rose an impressive 11.9%, compared with 5.35% in March, while mining rose 1.2% against 0.34% a month earlier. Consumer price food inflation, long considered the reason for a sticky retail inflation, also inched down to 9.40% year-on-year in May, compared with 9.66% in the month before.

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