Double whammy may continue for economy as inflation inches up, industrial output falls flat

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Updated: July 12, 2019 1:05:02 PM

Retail inflation in India is likely to have risen for the month of June, continuing its constant four-month rising streak since February, potentially increasing your monthly household budget.

 

IIP (industrial output) has failed to cross even a 3.5 per cent mark, after rising as much as 8.4 per cent in October 2018.

Retail inflation in India is likely to have risen for the month of June, continuing its constant four-month rising streak since February, potentially increasing your monthly household budget. On the other hand, the double-whammy for Indian economy continues, with the industrial output likely remaining flat in May. The IIP data (Index of Industrial Production) lags a month. A Reuters Poll has predicted an eight-month high CPI (Consumer Price Index) inflation in June, taking cues from rising food prices. Another poll from CNBC-TV18 predicts that India’s June retail inflation is expected to rise to 3.19 per cent, while the industrial output for May is expected to be mostly unchanged at 3.3 per cent.

Retail inflation has already climbed to 3.05 per cent in May from just 1.97 per cent in January, according to the data by the Ministry of Statistics and Programme Implementation. Food prices, which account for nearly half of the basket, rose to 1.83 per cent in May. Especially in urban areas, food inflation rose to a whopping 5.87 per cent during the month. However, the expected high inflation rate in June will still be below the RBI’s medium-term target of 4 per cent. This will be the eleventh straight month when retail inflation is below the central bank’s target.

The central bank cut the repo rate by 25 basis points to 5.75 per cent in its last monetary and credit policy review in June, and changed its monetary policy stance to “accommodative” from “neutral”. It was the third straight interest rate cut so far this year, as policymakers voiced concerns about the sharp slowdown in investment activity along with a continuing moderation in private consumption growth. Another reading below the inflation target will likely support the RBI’s decision to cut interest rates to boost economic growth that slowed to more than a four-year low in the January-March quarter.

Meanwhile, the IIP (industrial output) has failed to cross even a 3.5 per cent mark, after rising as much as 8.4 per cent in October 2018. IIP growth rate remained 3.4 per cent in April, rising from 0.4 per cent in the preceding month. manufacturing and mining saw an upward trend in April and is expected to remain steady in today’s results. The Nikkei Manufacturing Purchasing Managers’ Index (PMI) increased to 52.7 in May from April’s eight-month low of 51.8, remaining above the 50-mark threshold that separates growth from contraction.

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