Retail inflation surged to 7.96 per cent in July, up from 7.46 per cent in June, on account of higher food and beverage prices while factory output growth slowed to 3.4 per cent in June from 4.7 per cent in May on account of a sharp deceleration in manufacturing activity.
The twin data sets released on Tuesday increase the challenges for both the Reserve Bank of India (RBI) and the government in their efforts to bring inflation under control and to boost economic growth.
Factory output in June was largely dragged down by sluggishness in the manufacturing sector and contraction in the consumer durables sector. According to the Index of Industrial Production (IIP) data released by the ministry of statistics and programme implementation, the cumulative growth for the April-June period in 2014-15 stood at 3.9 per cent.
Though the growth was largely due to a low-base effect, experts said that industrial turnaround is expected in the second half of the current fiscal. The IIP had grown at 19-month high in May.
“The IIP data for June continues to reflect expansionary industrial activity compared to last year. However consumer durable as a sector continues to remain a concern … Nevertheless, we forecast the IIP to continue on an expansionary trend in the second half of 2014 with improving consumer demand,” Debopam Chaudhuri, chief economist, ZyFin Research, said in a statement.
Chaudhuri said massive infrastructural push by the Centre will play a vital role in reversing the slowdown even as risks including high petrol import bill, demand for gold, rising agricultural exports and its impact on food inflation may prove a dampener to the revival.
The electricity generation during the month grew 15.7 per cent compared to flat growth during June 2013 while capital goods production grew 23 per cent as against a contraction of 6.6 per cent in June 2013.
The mining sector posted a growth of 4.3 per cent compared to a negative growth of 4.6 per cent in June 2013 while the manufacturing sector grew 1.8 per cent during the month compared to a contraction of 1.7 per cent during the same period last year.
Consumer durables, however, declined by 23.4 per cent compared to a contraction of 10.1 per cent in June 2013.
Further, consumer goods production shrank 10 per cent as against a contraction of 1.5 per cent during the same period last year.
As for the rise in rate of prices at the retail level, the consumer price index (CPI) data revealed that food inflation during July rose to 9.36 per cent, while it was at 7.97 per cent in June.
Vegetables became costlier during the month, witnessing a double-digit price rise at 16.88 per cent, from 8.73 per cent in the previous month.
Similarly, fruit prices went up by 22.48 as against 20.64 per cent in June. The rate of price rise in pulses was 5.85 per cent.