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Wednesday, February 19, 2020

Mixed macro data: Retail inflation eases in August; July IIP growth slows

Consumer Price Index-based inflation in August eased to 10-month low of 3.69%, while the Index of Industrial Production growth slowed to 6.6% in July.

By: ENS Economic Bureau | New Delhi | Updated: September 13, 2018 1:49:47 am
Retail inflation cools to 11-month low of 3.69 percent in August The central bank has been mandated to keep retail inflation at 4 per cent level (with a margin of 2 per cent on either side).

Continuing the slide for the second straight month, retail inflation eased to a 10-month low of 3.69 per cent in August due to base effect and a fall in prices in the food category, especially fruits and vegetables. Industrial output growth inched lower to 6.6 per cent in July from 6.9 per cent a month ago due to weaker growth in capital goods and intermediate goods even as manufacturing and consumer durables kept up the momentum, data released by the Central Statistics Office (CSO) showed.

At 3.69 per cent, the inflation rate based on Consumer Price Index (Combined) remained well within the RBI’s inflation rate projection of 4.6 per cent for July-September. Going ahead, however, economists said weaker rupee and high crude oil prices will put pressure on inflation rate.

“Fuel and light inflation at 8.5 per cent (in August) was highest in last 60 months. However, other component affected by petroleum products prices — transport and communication — witnessed 60 basis points decline in inflation in August 2018 over July 2018. Going forward weaker currency and elevated crude oil prices will continue to exert pressure on inflation of these two commodity groups,” Devendra Kumar Pant, chief economist, India Ratings said.

In CPI, food and beverages inflation rate moderated to 0.85 per cent in August from 1.73 per cent in the previous month and the Combined Food Price inflation for August also eased 0.29 per cent from 1.30 per cent in the preceding month. Inflation rate for other categories such as fuel and light rose to 8.47 per cent in August from 7.96 per cent in previous month, while that for housing inched lower to 7.59 per cent from 8.30 per cent a month ago.

Inflation for clothing and footwear eased to 4.88 per cent in August from 5.28 per cent in the previous month, data showed.

Industrial growth, measured by the Index of Industrial Production (IIP), grew at 6.6 per cent in July compared with 6.9 per cent in June and 1.0 per cent in July last year. IIP growth in April-July stood at 5.4 per cent compared with 1.7 per cent year ago.

The manufacturing sector, which constitutes more than 77 per cent of the index, recorded a growth of 7 per cent in July as against 6.7 per cent in June and a contraction of 0.1 per cent in the year ago month. Consumer durables sector recorded a double-digit growth rate of 14.4 per cent in July as against 13.4 per cent a month ago and a contraction of 2.4 per cent in the year ago period. Consumer non-durables sector or the fast-moving consumer goods also grew strongly at 5.6 per cent in July, up from 0.2 per cent in the previous month and 4.1 per cent in the year-ago period.

Going ahead, economists expect IIP to remain on the lower side due to higher commodity prices and an adverse base effect. “Looking ahead, the GST rate cuts and the upcoming festive season may support the momentum of growth of consumer durables, even as possible price rise related to the currency depreciation and higher commodity prices may curtail demand to an extent. An adverse base effect is likely to continue to weigh upon the growth of capital goods in the next few months,” Aditi Nayar, principal economist, ICRA said.

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