Inflation slips, factory output slows; rate cut hope brightens

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New Delhi | May 12, 2015 10:46 PM

Retail inflation in April inched down to a four-month low of 4.87 per cent as prices of food items, vegetables and fruits turned cheaper.

Retail inflationA woman buys vegetables at a market in Ahmedabad, India, May 12, 2015. India’s consumer price inflation eased to a four-month low of 4.87 percent in April, on slower annual increases in food costs, government data showed on Tuesday. (Reuters)

Retail inflation eased to four-month low of 4.87 per cent in April while industrial output slowed to a five-month low of 2.1 per cent in March, raising hopes for an interest rate cut by the RBI.

Retail inflation in April inched down to a four-month low of 4.87 per cent as prices of food items, vegetables and fruits turned cheaper.

On the other hand, factory output, as measured by the Index of Industrial Production (IIP), contracted by 0.5 per cent in March 2014, according to government data released today.

The twin macro-economic indicators strengthen government and industry’s call to Reserve Bank of India Governor Raghuram Rajan to cut interest rates.

RBI is scheduled to review its monetary policy on June 2.

Commenting on the data, CII Director General Chandrajit Banerjee said, “CII hopes this (easing inflation) would provide the requisite space to RBI to continue with its rate easing cycle in its forthcoming monetary policy announcement to provide a fillip to growth and also encourage banks to reduce rates.”

Besides, Ficci President Jyotsna Suri said,”… the (manufacturing) growth remains tepid. Critical constraints for the sector like high interest rates, infrastructure bottlenecks, low domestic and export demand are an area of concerns… and may continue to impact growth of the sector in coming months.”

According to the data released by Central Statistics Office, industrial production grew at 2.8 per cent in 2014-15 as against a contraction of 0.1 per cent in 2013-14.

Meanwhile, Index of Industrial Production (IIP) for February has been revised downwards by CSO to 4.86 per cent from the provisional estimate of 5 per cent released last month.

The IIP had grown at 2.77 per cent in January, 3.56 per cent in December and 5.2 per cent in November, respectively.

The factory output contracted by 2.7 per cent in October.

According to IIP data, manufacturing output, which constitutes over 75 per cent of the index, grew by 2.2 per cent in March as against a contraction of 1.3 per cent in the same month a year ago.

The production of capital goods, a barometer of demand, grew by 7.6 per cent in March as against a contraction of 11.5 per cent in the same month of last year.

Mining sector grew by 0.9 per cent in March 2015 as against 0.5 per cent expansion in the same month last year.
Overall, 13 out of 22 industry groups in the manufacturing sector showed positive growth during March.

For whole 2014-15, the manufacturing sector expanded by 2.3 per cent as against a contraction of 0.8 per cent in 2013-14.

Capital goods output grew by 6.2 per cent last fiscal as against a dip of 3.6 per cent in 2013-14.

Mining output rose by 1.4 per cent last fiscal against a contraction of 0.6 per cent in 2013-14.

Commenting on the data, Assocham Secretary General D S Rawat said, “The government needs to keep on pushing more ground level reforms… to realise the true potential of the manufacturing sector and also generate employment opportunities.”

Besides, PHD Chamber President Alok B Shriram said, “Decline in CPI inflation in April is inspiring as it will create more room for softening monetary policy stance and help demand to reinvigorate.”

As per the data, the fall in food inflation was mainly driven by fruits, vegetables, milk and related products.

Food inflation, based on Consumer Food Price Index, fell to 5.11 per cent during the month from 6.14 per cent in March.

Prices of fruits and vegetables increased at a slower pace in April with inflation standing at 5.08 per cent and 6.63 per cent, respectively.

The rate of price rise in cereals and products was slower than a month ago at 2.15 per cent, while inflation in milk and its products was at 8.21 per cent.

Egg prices continued their downward trajectory with inflation at (-)1.46 per cent in April. However, the rate of price fall was slower than previous month’s (-)3.47 per cent.

Among others, inflation in oils and fats category fell to 1.77 per cent in April, sugar and confectionery at (-)5.99 per cent, spices (8.70 per cent) and in non-alcoholic beverages it was 4.68 per cent.

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