Factory output growth slipped to a three-month low of 4.3 per cent in August due to a sharp slump in mining output growth and moderation in primary goods output, alongside the impact of a high base. Meanwhile, retail inflation inched higher to a two-month high of 3.77 per cent in September from a 10-month low of 3.69 per cent in the previous month on the back of rise in fuel prices, data released by Central Statistics Office (CSO) Friday showed.
Industrial output had grown at 6.7 per cent in July 2018 and 7.1 per cent in August last year. Inflation, based on the Consumer Price Index (Combined) had stood at 3.28 per cent in September last year. Cumulatively, however, the Index of Industrial Production (IIP) recorded an improvement during April-August, rising to 5.2 per cent as against 2.3 per cent a year ago.
Economists said core-core inflation (inflation excluding food, fuel & light and transport & communication), which has
remained above 5 per cent for last 11 months, coupled with the slower IIP growth hints at weakening demand. Incidentally, after two successive rate hikes, the Reserve Bank of India’s monetary policy committee (MPC) kept key policy rates unchanged last week, citing a tepid inflation trajectory and downward revision to inflation projections.
However, the central bank’s stance was changed from “neutral” to “calibrated tightening”. The International Monetary
Mining slump drags factory output growth to 3-month low of 4.3% in Aug Fund (IMF) on Tuesday called for further tightening of monetary policy in India to anchor expectations as inflation was expected to pick up. According to the data released Friday, mining output posted a contraction of 0.4 per cent during August as against 3.4 per cent growth in July and 9.3 per cent growth in the year ago period. Primary goods output also slowed to 2.6 per cent in August from 6.7 per cent a month ago and 7.1 per cent in August last year.
Manufacturing output, which constitutes more than 77 per cent of the IIP, moderated to 4.6 per cent in August from 7 per cent in July but was higher than 3.8 per cent in the same period last year, the data showed. Electricity output grew at 7.6 per cent from 6.7 per cent a month ago but remained lower than 8.3 per cent growth seen last year. Consumer durables sector recorded a single-digit growth rate of 5.2 per cent in August as against 14.3 per cent in July, while consumer non-durables sector or the fast-moving consumer goods grew at 6.3 per cent in August compared with 5.5 per cent in July.
Of the 23 industry groups in the manufacturing sector, 16 recorded positive growth during August, with the industry group ‘manufacture of furniture’ posting the highest positive growth of 29.2 per cent followed by 18.9 percent in ‘Manufacture of wearing apparel’. The industry group ‘Printing and reproduction of recorded media’ showed the highest negative growth of (-) 19.2 per cent followed by (-) 17.0 per cent in ‘Manufacture of tobacco products’.
“On quarterly basis, July-September core-core inflation declined to 5.64 per cent from 6.10 per cent in April-June. This along with IIP for August 2018 suggests some weakening of demand in the economy. Despite softening of core-core inflation, it has remained elevated (more than 5 per cent) in last 11 months,” Devendra Kumar Pant, Chief Economist, India Ratings said.
As per the retail inflation data, food and beverages inflation rate rose to 1.08 per cent in September from 0.85 per cent in the previous month and the Combined Food Price inflation for September also increased to 0.51 per cent from 0.29 per cent in the preceding month. The index for fuel and light increased to 142.1 in September from 140.8 in August and 131.0 last year. The inflation rate for fuel and light, however, remained at the same level as previous month at 8.47 per cent in September.
At 3.77 per cent, the overall retail inflation rate is within the RBI’s inflation rate projection 4 per cent in July-September and 3.9-4.5 per cent in October-March. The RBI, in its fourth bi-monthly monetary policy statement last week, had said food inflation has remained unusually benign, which imparts a downward bias to its trajectory in the second half of the year, factoring in the estimate of the impact of an increase in minimum support prices (MSPs) announced in July in the baseline projections.
Economists said weaker rupee and high crude oil prices will, however, continue to put pressure on inflation rate going ahead giving rise to expectations of a rate hike by the RBI in December. “The mild uptick in the CPI inflation in September 2018 is in line with our expectation of a sub-4 per cent print for that month. However, the rise in crude oil prices, the sharp weakening of the rupee, and the revision in MSPs are likely to push up the headline inflation above 4 per cent in the ongoing quarter. These risks, combined with the change in stance from neutral to calibrated tightening, suggest a likely rate hike in the December 2018 policy review. At present, we expect further rate hikes of 25-50 bps in the remainder of FY2019,” Aditi Nayar, Principal Economist, ICRA Ltd, said.