June retail inflation at 5-month high, May IIP hits 7-month low

At 5 per cent, the inflation rate based on consumer price index (combined) has breached the Reserve Bank of India's inflation rate projection of 4.8-4.9 per cent for April-September.

By: ENS Economic Bureau | New Delhi | Published: July 13, 2018 1:37:01 am
June retail inflation at 5-mth high, May IIP hits 7-mth low While crossing 5 per cent mark was along expected lines, economists expressed concerns about inflation even rising further in coming months in the wake of the recent hike in minimum support prices.

Retail inflation jumped to a five-month high of 5 per cent in June primarily driven by rise in prices across the non-food categories of housing and fuel and light. Industrial output growth, however, slipped to a seven-month low of 3.2 per cent in May due to weaker growth in manufacturing, intermediate and consumer non-durables, Central Statistics Office data showed.

At 5 per cent, the inflation rate based on consumer price index (combined) has breached the Reserve Bank of India’s inflation rate projection of 4.8-4.9 per cent for April-September. While crossing 5 per cent mark was along expected lines, economists expressed concerns about inflation even rising further in coming months in the wake of the recent hike in minimum support prices.

“The movement has been on expected lines, however, what will become important would be to see how inflation plays out in the coming period, especially in the backdrop of the recent hike in minimum support prices (MSP), high crude oil prices and the pass through of input costs…while the setting in of favorable base impacts may provide some cushion, the MSP hikes may trigger a larger inflationary pressure,” Anis Chakravarty, lead economist and partner, Deloitte India said.

In CPI, food and beverages inflation rate moderated to 3.18 per cent in June from 3.37 per cent in May and the Combined Food Price inflation for June also eased 2.91 per cent from 3.10 per cent in the preceding month. Inflation rate for other categories such as fuel and light spiked to 7.14 per cent in June, while that for housing inched higher to 8.45 per cent. Inflation for clothing and footwear rose to 5.67 per cent in June, data showed.

Core-core inflation (excluding food, fuel & light and transport & communication) remained at over 6 per cent for the third month in a row at 6.3 per cent in June along with being the highest in 46 months, India Ratings said. “Such pattern was last observed during July-September 2014,” it said.

“Going forward, while base effect is likely to provide some cushion to inflation, elevated oil prices are likely to keep pressure on retail inflation. Another cog in the wheel would be the announced kharif MSP. Our estimate shows that this has potential to add 70 basis points to retail inflation,” Sunil Kumar Sinha, principal economist, India Ratings said.

Industrial growth, measured by the index of industrial production (IIP), grew at 3.2 per cent in May against 4.8 per cent in April and 2.9 per cent in May last year. The manufacturing sector, with 77 per cent share, recorded a growth of 2.8 per cent in May against 5.3 per cent in April and 2.6 per cent in the year ago month.

The consumer non-durables sector was the worst performer with a growth rate of – 2.6 per cent as against a growth of 9.7 per cent year ago and 7.9 per cent growth in previous month. The mining sector expanded by 5.7 per cent, up from 4 per cent in April this year and 0.3 per cent in year-ago period.

The industry group ‘Other manufacturing’ recorded the highest negative growth of (-) 31.9 per cent followed by (-) 15.6 per cent in ‘Manufacture of tobacco products’ and (-) 12.8 per cent in ‘Manufacture of wearing apparel’.

Going ahead, economists expect IIP to pick up. “Regardless of the mildly unfavourable base effect, the sharp slippage displayed by consumer non durables to a contraction of 2.6 per cent in May 2018 from the growth of 7.9 per cent in April 2018, is a cause of concern … IIP growth may record an uptick in June 2018 relative to the subdued 3.2 per cent print for May 2018, led by an improvement in electricity and manufacturing, as well as a favourable base effect related to the year-on-year contraction in industrial production in June 2017,” Aditi Nayar, principal economist, ICRA said.

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