Factory output growth jumped to a 11-month high of 8.1 per cent in October from a four-month low of 4.5 per cent in September aided by a low base and double-digit growth in capital goods and consumer durables output, data released by the Central Statistics Office (CSO) Wednesday showed. Retail inflation in November continued the downward trend, slipping to a 17-month low of 2.33 per cent with food prices staying in the negative zone along with lower fuel prices and waning impact of the HRA revision for Central government employees.
The higher-than-expected IIP reading is being seen temporary as other lead indicators such as automobile production, electricity generation moderated in November, the impact of which is expected to be visible in next month’s data release. Traditionally, October is the month that sees electricity demand hit its peak on a pan-India basis during the year.
Growth in capital goods output, which is a proxy for investment demand, grew at 16.8 per cent in October as against 6.5 per cent in September and 3.5 per cent in the year-ago period. Consumer durables output grew at 17.6 per cent in October against 5.2 per cent growth in September and a 9 per cent contraction in October 2017. Manufacturing sector’s output grew 7.9 per cent in October compared with 4.6 per cent growth a month ago and 2.0 per cent growth in October 2017.
Cumulatively for April-October, the Index of Industrial Production (IIP) grew at 5.6 per cent as against 2.5 per cent a year ago.
Wide variation in trends of IIP, CPI seen as a concern
While the rise in factory output and lower retail inflation come as a positive, wide variations in these trends is seen as a concern. The IIP has the risk of slipping closer to lower single digits in the remaining months of this fiscal on account of subdued urban and rural demand, while retail inflation also is at the risk of sudden reversal of food prices, especially of volatile perishable items and due to uncertainties related to the exact impact of minimum support price on inflation going ahead, as was detailed by the RBI in its fifth monetary policy statement earlier this month.
Economists said the IIP growth is likely to slip back to lower single digits in the remaining months of this fiscal owing to subdued consumer demand. “The IIP growth witnessed in the month of October 2018 has the benefit of low base and secondly going by the auto sales number the kind of demand that festival season should have generated for the consumer durables was not visible. It looks like both rural and urban demand remained stunted for different reasons. While the rural demand remained subdued because the higher MSP prices announced by the government for the kharif crops did not translate into higher income for the farmers, the NBFC issues adversely impacted the urban demand. India Ratings therefore believes the IIP growth numbers for the remaining months of this fiscal will remain close to lower single digit,” Sunil Kumar Sinha, Principal Economist, India Ratings said.
Retail inflation in November is the lowest since June 2017 when it had touched 1.46 per cent. Consumer Food Price Index (CFPI) inflation, which was already at (-) 0.86 per cent in October worsened further to (-)2.61 per cent in November. The ‘food and beverages’ segment registered a deflation of 1.69 per cent in November as against 0.14 per cent deflation a month ago. Vegetables recorded a deflation of 15.59 per cent in November as against a decline of 8.06 per cent in October, while pulses registered 9.22 per cent deflation as against 10.28 per cent deflation a month ago. Inflation for the ‘fuel and light’ category moderated to 7.39 per cent in November from 8.55 per cent a month ago.
At 2.33 per cent, the overall retail inflation rate is lower than the Reserve Bank of India’s (RBI’s) inflation projection of 2.7-3.2 per cent for October-March. The RBI in its fifth bi-monthly monetary policy statement on December 5 had said although recent food inflation prints have surprised on the downside and prices of petroleum products have softened considerably, it is important to monitor their evolution closely and several uncertainties still cloud the inflation outlook.