Economy

Retail inflation shoots up to 5.39% in April on rising prices of pulses, sugar

Surabhi New Delhi | Updated on January 20, 2018 Published on May 12, 2016

BL12_FACTORY OUTPUT

In a double whammy of sorts for the government and the central bank, which have been working to boost growth and keep prices under control, factory output slowed once again in March, while retail inflation climbed up in April.

The Index of Industrial Production (IIP) grew negligibly at 0.1 per cent in March, pulled down by contraction in the mining and manufacturing sectors as well as a sharp decline in output of capital goods.

IIP grew at 1.98 per cent in February after contracting for four straight months.

“The cumulative growth for the period April to March 2015-16 over the corresponding period of the previous year stands at 2.4 per cent,” said an official release on Thursday. Worryingly, this is lower than the 2.8 per cent growth clocked in 2014-15.

Mining and manufacturing sector output contracted by 0.1 per cent and 1.2 per cent, respectively, in March. Electricity production, however, grew a robust 11.3 per cent.

Capital goods worry

More worryingly, indicating a decline in investments, the production of capital goods contracted further by 15.4 per cent in March from a contraction of 9.5 per cent in February. The output of basic goods and intermediate goods also slowed down, but grew by 4 per cent and 3.7 per cent, respectively.

Consumer durables and consumer non-durables grew 8.7 per cent and (-) 4.4 per cent, respectively, with the overall growth in consumer goods at a mere 0.4 per cent.



Rate cut clamour

The subdued data is likely to increase calls for a rate cut by the Reserve Bank of India in its second bi-monthly monetary policy review on June 7.

“There is worry on both counts. IIP is much lower than expected in March and even on a cumulative basis it is lower than that in 2014-15,” said DK Joshi, Chief Economist, Crisil, adding that it is unlikely that the Reserve Bank of India will cut rates in the next policy due to the higher inflation.

“It has gone up over 5 per cent. The RBI is likely to watch the trend for a while before lowering rates,” he said.

Retail inflation for April jumped up to 5.39 per cent, against 4.83 per cent in March 2016. Consumer food price inflation shot up to 6.32 per cent from April, 2016 as prices of pulses and sugar rose. Consumer food price inflation was 5.21 per cent in March 2016.

Economic Affairs Secretary Shaktikanta Das, however, expressed hope that inflation will remain stable in the coming months. “The base effect partly magnified the retail inflation reading for April and some of it was due to sugar prices,” he said, adding that the sugar sector will require long-term reforms.

CARE Ratings said it needs to be seen whether a good monsoon will reinforce spending by households and the infrastructure push by the government becomes stronger to boost the IIP.

“Given the monsoon forecast, the CPI inflation rate will not cross six per cent but will continue to range between five per cent and six per cent for some time,” it said.

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Published on May 12, 2016
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