Industrial output growth up in June, consumer inflation slid last month

Consumer price inflation fell to 3.78 per cent in July from 5.4 per cent in June as food prices remained soft, according to data released by Ministry of Statistics and Programme Implementation (MOSPI) on Wednesday.

After rising to an eight-month high in June, consumer inflation, the key determinant of monetary policy in the country, cooled off to hit the lowest level on record last month. The government started compiling a new national consumer inflation data from 2012, replacing its previous disaggregated, geography and vocation based statistics.

While consumer inflation in the country has dipped, concerns over El Nino—that disturbs the rain pattern and is seen as crucial for agriculture—might fuel prices again.

IMD in its latest monsoon forecast early this month predicted below normal monsoon for the remaining two months of the annual rainy season. On the other hand the constant fall in commodity prices is expected to keep prices in check as global crude oil price dipped below the $50 mark last week and was trading at $49 a barrel on Wednesday.

While the RBI had put the rate cut on hold last week as anticipated, it highlighted that it will look at inflation more closely before deciding on future rate cuts. Although consumer inflation is expected to get pushed up a bit with weakening monsoon, it may not breach the upper limit of 6 per cent to affect the policy rate decision. However, this may get underplayed as a factor as and when the US Fed decides to raise the interest rate.

That would push pressure on the currency and may play on the RBI governor's mind as rate cut would lead to further slide in Indian currency. Already the Yuan devaluation in China has weakened the Indian rupee significantly.

Meanwhile, on the industrial production front, the economy had better numbers to show as growth in the consumer goods propped up the industrial output as measured by Index of Industrial Production (IIP). The growth in IIP was higher at 3.8 per cent in June as against the revised estimate of 2.5 per cent growth in May.

During the April-June period of 2015-16, industrial output growth is pegged at a modest 3.2 per cent over the year-ago period.

Two of the three major sectors in IIP—mining, manufacturing and electricity— rose in June.

While the mining sector saw output decline 0.3 per cent against 2.3 per cent growth in May, manufacturing sector grew 4.6 per cent compared with 2 per cent in the previous month. Electricity generation, on the other hand, increased at a slower pace registering a rise of a 1.3 per cent against 6 per cent in the previous month.

The cumulative growth in these three sectors for the first quarter over the corresponding period of 2014-15 has been 0.7 per cent, 3.6 per cent and 2.3 per cent, respectively.

In terms of industries, 16 of the 22 industry groups in the manufacturing sector grew during the month.

As per a use-based classification, basic goods output was up 5.1 per cent, while capital goods, which is a lead indicator of business activity picking in the near term, declined 3.6 per cent. The fall in capital goods shows business sentiment in the manufacturing sector is not yet strong enough to make firms to add machines to their factories.

Within the consumer goods basket, consumer durable and non-durable expanded 16 per cent and 1.3 per cent, respectively, with the overall consumer goods output increasing 6.6 per cent.

While industrial output recorded better numbers, release of quarterly results by companies showed weaker earnings. With key tax legislation stalled in the Parliament, the government will face an uphill task to boost manufacturing numbers.

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