Economy's double whammy

Retail inflation inches up to 3.77%; IIP growth dips to 3-month low

Illustration: Uttam Ghosh/rediff.com

Industrial production dropped to a three-month low of 4.3 per cent in August mainly due to a fall in mining output, while retail inflation inched up to 3.77 per cent in September as fuel rates peaked and food prices rose, further raising prospects of a RBI rate hike in the near future.

However, the retail inflation - which is taken into account by the Reserve Bank while deciding the monetary policy - is below the central bank's medium-term target of 4 per cent.

The experts are of the opinion that there are chances of either rate hike or hold in view of firming up of headline inflation in view rising fuel prices, depreciating rupee and upward revision in crop support prices.

The next policy of the RBI is due on December 5.

"The mild uptick in the CPI (retail) inflation in September 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 MSP (minimum support price) are likely to push up the headline inflation above 4 per cent in the ongoing quarter," said ICRA Ltd principal economist Aditi Nayar, commenting on the two macro-economic data released on Friday.

She is of the view that 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 basis points in the remainder of FY2019."

Dharmakirti Joshi, chief economist, CRISIL Research, said, "Even if the increased minimum support prices translate into commensurate increase in retail prices, consumer inflation can rise only 50 basis points.

That, in turn, means the policy rate could be on hold during the Monetary Policy Committee's December review as well."

The retail inflation rose marginally to 3.77 per cent in September owing to higher fuel and food prices as per the data released on Friday by Central Statistics Office (CSO).

The inflation based on consume price index (CPI) had declined to a 10-month low of 3.69 per cent in the previous month.

In September 2017, it was at 3.28 per cent.

In categories such as cereals, meat and fish, eggs, milk products, retail inflation showed an upward trend.

In fruits, however, the inflation rate moderated in September.

The overall inflation in consumer food basket increased to 0.51 per cent as against 0.29 per cent in August, showed the data.

In fuel and light category, the rate of price rise was at 8.47 per cent in September. Industry body Assocham said, "...so, any worry about the consumer inflation impacting the interest rates is abated for now as the level of price rise is well below the RBI target of 4 per cent."

According to data, industrial production growth slipped to a three-month low of 4.3 per cent in August mainly due to a sharp decline in the mining sector output and poor offtake of capital goods, as per CSO data.

The industrial production measured in terms of Index of Industrial Production (IIP) was 4.8 per cent in August last year.

The mining sector production contracted by 0.4 per cent in August compared to a growth of 9.3 per cent in the year-ago month.

Similarly, the capital goods output growth decelerated to 5 per cent during the month from a 7.3 per cent expansion a year ago.

The IIP growth is the lowest since May when industrial production grew at 3.9 per cent.

Industrial production expanded by 6.8 per cent in June and 6.5 per cent in July.

The manufacturing sector output grew at 4.6 per cent in August compared to 3.8 per cent a year ago.

Power generation rose at the rate of 7.6 per cent in the month as against 8.3 per cent in the year-ago month.

In terms of industries, 16 out of 23 industry groups in the manufacturing sector have shown positive growth during August 2018 as compared to the corresponding month of the previous year.

As per use-based classification, the growth rates in August 2018 over the same month of 2017 are 2.6 per cent in primary goods, 2.4 per cent in intermediate goods and 7.8 per cent in infrastructure/construction goods.

The consumer durables and consumer non-durables have recorded growth rates of 5.2 per cent and 6.3 per cent, respectively.

According to data, the IIP growth in April-August was 5.2 per cent, up from 2.3 per cent in corresponding period of the previous fiscal.