DNA Money Edit: Inflation, IIP down. Can we have a rate cut now?

Sharper decline in retail inflation to a record low in May and a decrease in the industrial output growth (with new base 2011-12) for April has come at a time when India is looking to step up its growth pace. As expected, consumer price inflation fell below the 2.5% mark to report 2.18%, driven by a decline in prices of food and beverages. On the other hand, IIP decreased 3.1% in April, compared to a revised growth of 3.8% in March, but lower than 6.5% in April 2016.

The decline in CPI was led by a large correction in food inflation and a broadly anticipated dip in core inflation. With crude oil prices easing in June, an anticipated downward revision in prices of petrol and diesel is likely to cool headline inflation. For the first time since January 2012, food prices saw deflation in May (-1.05%), and the prospect of good monsoon rains is likely to keep food inflation in check. The month-on-month rise in food prices in June appears to be limited to a few items.

To clock an increase in IIP, manufacturing output grew 2.6% on a year-on-year basis and electricity production grew 5.4% while mining rose 4.2%. With a pickup in growth to 8.3% in April 2017 from 6.2% in March 2017, consumer non-durables recorded the best performance among the use-based categories. The sustainability of the growth is in doubt as the sector has grown in double digits in several months during last one year.

The drop in inflation clears the road for an interest rate cut by the RBI.