Factory output growth slipped to a four-month low of 4.5 per cent in September, primarily due to moderation in output of capital goods, mining and lower-than-expected uptick in consumer durables output. The subdued numbers are despite the onset of festival season, which was expected to push up factory output growth, especially of consumer durables.
Retail inflation too slipped to a 13-month low of 3.31 per cent in October on the back of deflation in food items, with the Food Price Index inflation at (-)0.86 per cent in October as against 0.51 per cent a month ago, data released by the Central Statistics Office (CSO) Monday showed.
The subdued increase in industrial output from 4.1 per cent in September last year (growth in August 2018 was 4.7 per cent) was reflective of slow pickup in consumption demand as consumer durables clocked a growth of 5.2 per cent despite having a low base of (-) 4.1 per cent. Growth in the capital goods output, which is a proxy for investment demand, also slowed to 5.8 per cent in September as against 9.3 per cent in August and 8.7 per cent in September 2017.
After two successive hikes, the Reserve Bank of India’s monetary policy committee had kept interest rates unchanged in its last review on October 5, citing a tepid inflation trajectory and downward revision of inflation projections. RBI’s next policy review is scheduled for 5 December.
Cumulatively, the industrial output in April-September, the first half of this financial year, grew 5.1 per cent as against growth of 2.6 per cent last year. Economists said that it appears that the onset of festival season has not helped in accelerating the factory output growth especially of the consumer durables. In terms of industry segments, 17 out of 23 industry groups in manufacturing sector recorded positive growth in September, with the industry group ‘printing and reproduction of recorded media’ having shown the highest negative growth of (-) 12.9 per cent followed by (-) 10.7 per cent in ‘other manufacturing’ and (-) 7.3 per cent in ‘manufacture of tobacco products’.
Retail inflation in October is the lowest since September 2017 when it had touched 3.28 per cent. The ‘food and beverages’ segment registered a deflation of 0.14 per cent as against 1.08 per cent inflation a month ago.
Vegetable inflation declined by 8.06 per cent in October against a provisional 4.15 per cent in September, while inflation in fruits segment slowed to 0.35 per cent as against 1.12 per cent recorded a month ago. The retail inflation also cooled in protein-rich items like cereals, eggs, milk and related products. However, inflation for the ‘fuel and light’ category rose to 8.55 per cent as against 8.47 per cent in the previous month.
At 3.31 per cent, the overall retail inflation rate is within the Reserve Bank of India’s (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 month 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 while the headline CPI inflation came in well below forecasts, the sequential hardening in the core inflation poses some concern. “Core inflation rose to an uncomfortably high 6.1 per cent in October 2018, led by services such as health, as well as the impact of commodity prices on the inflation for transport and communication, household goods and services, and personal care and effects, in sharp contrast to the YoY disinflation in food items. The MPC is likely to maintain a status quo on the repo rate in the December 2018 policy review, following the correction in the October 2018 headline CPI inflation print, as well as the recent pullback in crude oil prices and the INR, which have doused concerns related to the inflation trajectory. Nevertheless, the month-on-month rise in prices of various food items so far in November 2018 and the weak start to the post-monsoon rainfall season, need to be watched,” Aditi Nayar, principal economist, ICRA said.