Retail inflation at 3-month low

Factory output and retail inflation data, suggesting an economy on the mend, brought cheer to the new Government.

While the Consumer Price Index (CPI) came down to a three-month low of 8.28 per cent in May from 8.59 per cent in April, the Index of Industrial Production (IIP) grew 3.4 per cent on a year-on-year basis in April.

Factory output had recorded 1.5 per cent growth in April 2013. IIP growth for March 2014 remained unchanged at 0.5 per cent.

The latest softening in retail inflation was due to the subdued prices of vegetables, dairy products and cereals.

In February, retail inflation was at 8.03 per cent, followed by 8.31 per cent in March and 8.59 per cent in April.

The average CPI-based inflation has hovered around 10 per cent over the last two years, making it difficult for the Reserve Bank of India to cut policy rates.

The latest positive data points could drive investment sentiments and bring cheer to the stock market, which has been rallying on hope of an economic turnaround under the Modi-led regime, say economy watchers.

The IIP performance for April was bolstered by a sharp increase in manufacturing, mining and electricity output. While manufacturing, which accounted for 75 per cent of IIP, grew 2.6 per cent (1.8 per cent), mining sector output in April grew 1.2 per cent (-3.4 per cent)

Power generation in April grew 11.9 per cent (4.2 per cent). Capital goods output grew 15.7 per cent in April compared to a contraction of 0.3 per cent in the same month last year.

Consumer goods output declined 5.1 per cent in April as compared to growth of 1.7 per cent a year ago. Consumer durables contracted 7.6 per cent in April (-9.6 per cent).

Industry view

The Federation of Indian Chambers of Commerce and Industry President Sidharth Birla said the revival of the manufacturing sector is an absolute need of the hour. Higher export growth in May and positive growth in manufacturing in April indicate better prospects for industry in the coming months, he said.

“But it may be too early to construe it as recovery sign and we need to see if this would be a sustainable growth,” Birla said.

Chandrajit Banerjee, Director-General of CII, said the return of industrial growth to the positive terrain is noteworthy and has rekindled the hope of industrial recovery.

This was critical to lift the economy and mark a return to the path of growth, he added.

(This article was published on June 12, 2014)
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