Inflation remains high, factory growth muted

India’s retail inflation rate rose 5.77% in June driven by soaring food prices, while factory output crawled at 1.2% in May, signs of a wobbly recovery in the broader economy. A high inflation rate will likely weaken the chances of an interest rate cut in the Reserve Bank of India’s (RBI’s) monetary policy review next month.

Retail inflation, a gauge to measure changes in shop-end prices, was 5.76% in May, and costlier food items have pushed up the overall inflation rates again. Consumer food price inflation, a metric to measure changes in household kitchen budgets, grew 7.79% in June from 7.47% in the previous month, data release don Tuesday showed. Price of pulses, a common source of protein for most Indians, grew 26.86% in June from 31.57% in May.

Factory output, measured by the index of industrial production (IIP), grew at 1.2% May from a decline of (-)1.3 % in the previous month. The manufacturing sector, which accounts for two-thirds of the IIP, grew at 0.7% during the month.

“A key positive was the turnaround in the performance of manufacturing to a growth of 0.7% in May 2016, which while marginal, did arrest the contraction seen in the previous two months,” said Aditi Nayar, Senior Economist, ICRA Limited.

Capital goods output, which serves as gauge for additional investment activity , contracted (-)12.4% in May from a decline of (-)33.4% in April, mirroring muted capacity additions.

Business leaders called for policy push to revive industrial activity.

“The growth in manufacturing remains subdued and a cause for concern. The weak consumer and investment demand points to the fact that recovery is going to be slow in manufacturing and the need for addressing more deep rooted structural issues” said A Didar Singh, secretary general of industry body, FICCI.

“We do need to secure a solid market in EU and UK. If you have outward oriented growth strategy, you can sell in domestic market also ,” CEA Arvind Subramanian said on Tuesday .“It will help India to grow at 8-10% and achieve 15% export growth. I think India and other developing countries should keep their economies open .”