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Rate cut hopes dim as inflation rises in Feb

Source: PTI
March 13, 2015 08:13 IST
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Diminishing hopes of another rate cut by the Reserve Bank, retail inflation rose to 5.37 per cent in February, the third consecutive month of uptick, even as industrial output grew by modest 2.6 per cent in January.

According to data released by the Central Statistics Office (CSO), growth in industrial production was, however, lower than revised figure of 3.23 per cent in December 2014. It is higher than 1.1 per cent in January last year.

The improvement in factory output, measured in terms of Index of Industrial Production (IIP), was primarily on better performance by the manufacturing sector which accounts of 75 per cent of the index.

Inflation remains a worry with the third straight increase in February due to costlier food items, including vegetables and beverages. Retail inflation measured in terms of Consumer Price Index (CPI) rose to three month high of 5.37 per cent in February, up from 5.19 per cent in January. It had risen to 5 per cent in December last year.

Cheering IIP numbers, the industry asked the RBI not be swayed by slight uptick in inflation and should continue to moderate interest rates to push growth.

CII Director General Chandrajit Banerjee said: "There is marginal uptick in CPI inflation over the previous month. "But this should not dissuade the RBI from continuing with its rate easing cycle to support growth in the forthcoming monetary policy announcement in April, especially as the performance of consumer durables continues to be muted and inflation is within the comfort zone of the RBI."

The Reserve Bank of India has cut policy rate by 0.50 per cent in the last two months to 7.5 per cent. The central bank is widely expected to go for another another cut in its monetary policy review meet slated for April 7.

It may be noted that the International Monetary Fund (IMF) in its annual assessment report has suggested that India should keep its monetary policy tight as underlying inflationary pressures and upside risks remain.

On IIP front, manufacturing in January showed a marked improvement at 3.3 per cent that comes after several months of sluggishness. In the same month a year ago, manufacturing out grew by 0.3 per cent.

For April-January period, the sector saw an output growth of 1.7 per cent, compared to a contraction of 0.3 per cent in the year-ago period.  According to CSO data, the CPI in February last year was 7.88 per cent.

Food inflation during the month under review rose to 6.79 per cent from 6.06 per cent in January. The rise in inflation in food items was mainly due to costlier vegetables, pulses and beverages.

The rate of price rise in vegetables went up by 13.01 per cent; in pulses and products by 10.61 per cent, while the same in the food & beverages category rates moved up by 6.76 per cent. Inflation in fruits was 8.93 per cent.

For rural segment, retail inflation was 5.79 per cent in February 2015 and that for urban centres 4.95 per cent. As regards IIP, production of capital goods, a barometer of demand, grew by 12.8 per cent in January as against a contraction of 3.9 per cent in same month last year.

Fourteen out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of January year-on-year. Power generation grew by 2.7 per cent in January compared to 6.5 per cent in the same month last year.

During April-January period, electricity production grew by 9.3 per cent compared to a growth of 5.7 per cent in the corresponding period last fiscal.

The mining sector output contracted by 2.8 per cent in January, compared to a growth of 2.7 per cent in the same month last year. During April-January period, output has grown by 1.3 per cent compared to a contraction of 1.1 per cent year-on-year.

The overall consumer goods output has declined by 1.9 per cent in January compared to a dip of 0.5 per cent in the same month last year. During April-January, the output of these goods contracted by 4.7 per cent compared to a dip of 2.7 per cent in the corresponding period last fiscal.

Similarly, consumer durables output also contracted by 5.3 per cent. In April-January, the output declined by 14.2 per cent compared to a dip of 12.5 per cent in the same period last fiscal.

The consumer non-durable production also contracted by 0.1 per cent in January compared to a growth of 4.5 per cent in same month last year. During April-January the output grew by 1.9 per cent compared to a growth of 5.7 per cent.

However the basic goods output grew by 4.5 per cent in January compared a growth of 2.8 per cent in same month last year. 

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