Contraction in mining output and fall in electricity output weighed on IIP growth
Industrial growth declined marginally to 7.1% in February from 7.4% in the previous month due to contraction in mining output and electricity generation. Meanwhile, the annual retail inflation eased for the third straight month in March to 4.28% following a drop in the food prices, the government data showed on Thursday."While there was an expected dip in the Index of Industrial Production (IIP) growth in February as compared to the previous month, the pace of expansion was modestly higher than anticipated. With the IIP growth exceeding 7% for January - February, the outlook for the GVA growth for Q4 FY 2018 has become brighter," said Aditi Nayar, principal economist at ICRA.
This can be taken as a transitory change mainly on account of lower output in mining sector, said DK Srivastava, chief policy advisor at EY. "We can look at the prospects of the quarterly growth. There has been a general pick up in manufacturing which would lead to a 7% growth and therefore the overall annual growth will be less than 7%," he added.
After a gap of three months, mining output contracted 0.3% as against a growth of 4.6%. Moreover, the pace of growth of electricity generation eased sharply to 4.5% in February.
On the other hand, capital goods, infrastructure as well as consumer goods reported robust performance, thus helping IIP growth stay above 7% in February.
Meanwhile, retail inflation hit a five-month low at 4.28% in March compared with 4.44% in February.
The dip in inflation for food and beverages in March was primarily led by vegetables, egg and milk. Inflation in the vegetables segment cooled to 11.7% in March from 17.57% in the previous month.
However, inflation in fruits basket was higher. Overall, inflation in the food basket was 2.81%, lower than 3.26% in February. Inflation in the fuel segment also came in lower at 5.73% month-on-month basis.
"A continued easing in prices of pulses, sugar and some vegetables would dampen the impact of the seasonal uptick in prices of various perishable items in the ongoing month, said Nayar.
"As expected, cooling food prices dampened the headline Consumer Price Index (CPI) inflation to a five month low of 4.3% in March, bringing the average for the quarter in line with MPC's forecast of 4.5%," Nayar said. However, the core inflation rose to a 43-month high of 5.4% in March, driven by miscellaneous items and pan, tobacco and intoxicants, she added.
The CPI inflation in March modestly exceeded the medium term target of 4%, driven by the sub-components except food and beverages, Nayar said.
Experts believe inflation is likely to inch up in the coming months. "The inflation is likely to inch up mainly due to petroleum prices which are showing signs of firming up," Srivastava said.
Meanwhile, ICRA expects the CPI inflation to chart an uptrend in the current quarter to around 5.3% in June, before the base-effect led easing taking effect in the subsequent months.
...& ANALYSIS
- Contraction in mining output and fall in electricity output weighed on IIP growth
- ICRA expects the CPI inflation to rise to around 5.3% in the June quarter before easing thereafter
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"As expected, cooling food prices dampened the headline Consumer Price Index (CPI) inflation to a five month low of 4.3% in March, bringing the average for the quarter in line with MPC's forecast of 4.5%," Nayar said. However, the core inflation rose to a 43-month high of 5.4% in March, driven by miscellaneous items and pan, tobacco and intoxicants, she added.
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