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Retail inflation soars to 6.07 per cent in July; IIP growth down to 2.1 per cent in July

CPI inflation well above RBI’s comfort level of 4%

By: ENS Economic Bureau | New Delhi |
August 13, 2016 2:51:20 am
IIP, Index of Industrial Production data, Index of Industrial Production data negative growth, Index of Industrial Production data negative, FICCI, Federation Of India Chamber Of Commerce & Industry, Production of capital goods, captial goods production India, India news, Latest news, national News inflation, food inflation, inflation news, interest rate cut, raghuram rajan, rajan,RBI, business news, Consumer Price Index-based (CPI) inflation, which was 5.77 per cent in June this year and 3.69 per cent in July last year, rose on surge in prices of food items such as sugar, oil and spices.

Retail inflation increased to nearly 2-year high of 6.07 per cent in July, well above the Reserve Bank of India’s comfortable level and a recent target of 4 per cent notified by the government, while industrial output growth halved to 2.1 per cent in June, data released by the government showed on Friday.

The government last Friday notified an inflation target of 4 per cent for the next five years, which the proposed Monetary Policy Committee (MPC) of the Reserve Bank of India will have to achieve through its interest-rate setting policies. The government has provided a margin of plus or minus 2 per cent in the inflation target, fixing the upper tolerance level at 6 per cent till 2021.

Consumer Price Index-based (CPI) inflation, which was 5.77 per cent in June this year and 3.69 per cent in July last year, rose on surge in prices of food items such as sugar, oil and spices. Inflation was highest since September 2014, when it was at 6.46 per cent.

“While Inflation has surprised on the upside, recent high frequency data suggests ebbing of food prices. We continue to maintain that the recent surge in food price pressures will begin to fade in the following weeks,” said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank.

Food inflation during the month rose to 8.35 per cent, up from 7.79 per cent in June. “We expect CPI inflation to trend downwards in the next few months, and print in the range of 4.5-5.5 per cent in the remainder of 2016,” ICRA Ltd senior economist Aditi Nayar said.

In July, sugar and confectionery inflation rose to 21.91 per cent (against 16.79 per cent in June); oil and fats to 4.96 per cent and spices to 9.04 per cent. There was an uptick in prices of cereals and products with inflation standing at 3.88 per cent, while that for eggs shot up to 9.34 per cent (against 5.51 per cent).

Milk and products, also used as key ingredient for making eatables during festival, saw inflation rising to 4.13 per cent in July (from 3.43 per cent). Inflation in fruits, vegetables and pulses was 3.53 per cent, 14.06 per cent and 27.53 per cent respectively.

While inflation moved up, index of industrial production (IIP) growth was down to 2.1 per cent in June, as compared to 4.2 per cent in June 2015. Industrial output growth was lower on account of poor show by the manufacturing sector and contraction in capital goods production.

On cumulative basis, the factory output in the April-June quarter grew by 0.6 per cent compared to 3.3 per cent growth in the year-ago period. The June growth was however higher than 1.1 per cent (revised from 1.2 per cent provisionally) in May.

Manufacturing sector that constitutes over 75 per cent of the IIP, recorded growth of 0.9 per cent in June compared to 5.2 per cent a year ago. For the April-June quarter, manufacturing sector’s output contracted by 0.7 per cent, as against a growth of 3.7 per cent a year ago.

The capital goods output registered a sharp decline of 16.5 per cent in June over a contraction of 2 per cent in last year.

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