Inflation eases in April; industrial output slows in March: VCCircle survey

Inflation is set to ease further and the sluggish economy will likely pull down industrial output for April, according to a survey of economists conducted by VCCircle. 

Official statistics on both inflation numbers for April and industrial performance for March are due next week.

A poll of 19 economists showed that consumer inflation is set to fall to 4.85 per cent, up from 5.17 per cent in March due to lower food prices. The average figure was culled from the median of the numbers thrown by the respondents.

The unseasonal rains which destroyed majority of rabi crops in the country has had limited impact on food prices. But the upside risks to inflation are high in the coming months as an increase in crude prices coupled with low monsoon predicted by IMD plays spoilsport.

On the other hand, economists did not expect much changes in wholesale prices, predicting a rate of fall of 2.3 per cent for April, compared with the year-ago period. 

Meanwhile, the economists polled expect the industrial activity to slip further with output growth slowing down to 2.80 per cent for March from 5 per cent in February. 

"Overall early economic data have been lukewarm for March and thus we don't expect to see the continuation of the factory output growth that was recorded in February," said Bharti Bhargava regional economist at 4CAST.

Data released last week on the index of eight core industries showed activity in the negative territory the first time in one-and-a-half years. The eight core industries is a proxy for IIP data as it comprises nearly 38 per cent of the weight of items included in the Index of Industrial Production (IIP).

Along with slumping core industries, falling exports are also expected to taper the industrial output. Exports have been sliding since September on account of weak global demand and fell by 21 per cent in March.  

Activity in the Indian economy still remains muted despite the government’s effort to boost production. Manufacturing as well as service sector activity expanded at a weaker pace in April, according to data released by HSBC this week. HSBC Composite PMI declined to a six-month low of 52.5 in April. 

The lack of growth in factory activity and inflation well below the RBI target of 6 per cent for the year, presenting a compelling case for RBI to slash rates in the upcoming policy review. RBI has already slashed rates twice this year by 50 bps but the benefits of the rate cut are still to propel growth in the economy. RBI in its April meeting had emphasised that the next rate cut would ensue only after bank has analysed further trends in inflation and when banks transfer the rate cut to consumers. 

RBI is expected to meet for the second bi-monthly review on June 2.

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