Retail inflation at record low, industrial output up

New Delhi :Retail inflation fell to a record low of 3.78 per cent in July and industrial production hit a 4-month high of 3.8 per cent in June, which may bring cheer to investors and add to the clamour for interest rate cut by RBI.

Retail inflation rose by 3.78 per cent year-on-year in July, slowest pace on record, helped by lower food prices of certain items including of vegetables, fruits and cereals.

At the same time, factory output, as measured by the Index of Industrial Production, expanded by 3.8 per cent in June on sharp rebound in demand for consumer goods. IIP was however lower compared to 4.3 per cent in June last year.

The data came today admist a political logjam in Parliament that has stalled key reform measure of GST that will create one of the world’s largest single markets.

The twin macro-economic indicators strengthen government and industry’s call to Reserve Bank Governor Raghuram Rajan to cut interest rates. Rajan kept rates unchanged this month to contain inflation, third-highest rate in Asia.

Finance Minister Arun Jaitley said the growth in manufacturing is a positive development for the economy. “It shows that the economy is firmly on the growth path.”

A top official at the ministry said: “We have maintained that high interest rates are hurting the economy. There is case for interest rate to come down sharply.”

CII Director General Chandrajit Banerjee said, “Easing of the July retail inflation…should motivate the RBI to resume its rate easing cycle in its next monetary policy especially as the capital goods sector is in the red indicating that new business orders are expanding at a notably slower pace as high interest costs are adversely impacting investment decisions.”

According to the data released by Central Statistics Office, the IIP growth for May has been revised downwards to 2.5 per cent from the earlier estimate of 2.7 per cent.

For the first quarter (April-June) of the current fiscal, the industrial production is at 3.2 per cent, as compared to 4.5 per cent growth in the year-ago period.

Manufacturing, which constitutes over 75 per cent of the index, grew at 4.6 per cent in June compared to 2.9 per cent in the same month last year. During the April-June period, the sector has grown 3.6 per cent, compared to 3.9 per cent in the year-ago quarter.

In terms of industries, 16 out of 22 groups in the manufacturing sector have shown positive growth in June, as compared to the same month of last fiscal.

As for food inflation, as measured on Consumer Food Price Index for July, it fell to 2.15 per cent as against 5.48 per cent recorded in the previous month.