Retail inflation eases to 4-month low, industrial output slows raising hopes of rate cut

Retail inflation eased to four-month low of 4.87% in April while industrial output slowed to a five-month low of 2.1% in March, raising hopes for an interest rate cut by the RBI.

Retail inflation in April inched down to a four-month low of 4.87% as prices of food items, vegetables and fruits turned cheaper.

On the other hand, factory output, as measured by the Index of Industrial Production (IIP), contracted by 0.5% in March 2014, according to government data released on Tuesday.

The twin macro-economic indicators strengthen government and industry's call to Reserve Bank of India Governor Raghuram Rajan to cut interest rates. RBI is scheduled to review its monetary policy on June 2.

Commenting on the data, CII Director General Chandrajit Banerjee said, "CII hopes this (easing inflation) would provide the requisite space to RBI to continue with its rate easing cycle in its forthcoming monetary policy announcement to provide a fillip to growth and also encourage banks to reduce rates."

Besides, Ficci President Jyotsna Suri said,"... the (manufacturing) growth remains tepid. Critical constraints for the sector like high interest rates, infrastructure bottlenecks, low domestic and export demand are an area of concerns... and may continue to impact growth of the sector in coming months."

According to the data released by Central Statistical Office, industrial production grew at 2.8% in 2014-15 as against a contraction of 0.1% in 2013-14.

Meanwhile, IIP for February has been revised downwards by CSO to 4.86% from the provisional estimate of 5 per cent released last month.

The IIP had grown at 2.77% in January, 3.56% in December and 5.2% in November, respectively. The factory output contracted by 2.7% in October.

According to IIP data, manufacturing output, which constitutes over 75% of the index, grew by 2.2% in March as against a contraction of 1.3% in the same month a year ago.

The production of capital goods, a barometer of demand, grew by 7.6% in March as against a contraction of 11.5% in the same month of last year.

Mining sector grew by 0.9% in March 2015 as against 0.5% expansion in the same month last year. Overall, 13 out of 22 industry groups in the manufacturing sector showed positive growth during March.

For whole 2014-15, the manufacturing sector expanded by 2.3% as against a contraction of 0.8 per cent in 2013-14. Capital goods output grew by 6.2% last fiscal as against a dip of 3.6% in 2013-14. Mining output rose by 1.4% last fiscal against a contraction of 0.6% in 2013-14.

Commenting on the data, Assocham Secretary General DS Rawat said, "The government needs to keep on pushing more ground level reforms... to realise the true potential of the manufacturing sector and also generate employment opportunities."

Besides, PHD Chamber President Alok B Shriram said, "Decline in CPI inflation in April is inspiring as it will create more room for softening monetary policy stance and help demand to reinvigorate." As per the data, the fall in food inflation was mainly driven by fruits, vegetables, milk and related products.

Food inflation, based on Consumer Food Price Index, fell to 5.11% during the month from 6.14% in March. Prices of fruits and vegetables increased at a slower pace in April with inflation standing at 5.08% and 6.63%, respectively.

The rate of price rise in cereals and products was slower than a month ago at 2.15%, while inflation in milk and its products was at 8.21%.

Egg prices continued their downward trajectory with inflation at (-)1.46% in April. However, the rate of price fall was slower than previous month's (-)3.47%.

Among others, inflation in oils and fats category fell to 1.77% in April, sugar and confectionery at (-)5.99%, spices (8.70%) and in non-alcoholic beverages it was 4.68%.