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Factory output rises in April, but so does May retail inflation

Author: IANS/Wednesday, June 13, 2018/Categories: Economy

Factory output rises in April, but so does May retail inflation

New Delhi - High food and fuel prices lifted India's May retail inflation close to the 5% mark, even as the manufacturing sector pushed the country's April industrial production higher by 4.9%.

The macro-data points -- Consumer Price Index (CPI) Numbers for May and the Quick estimates of index of Industrial Production for April -- were released by the Central Statistics Office on Tuesday.

According to CSO, the CPI inflation in May stood at 4.87%, registering more than double growth over the 2.18% recorded in the same month last year, and up from the 4.58% recorded in April 2018.

Accordingly, the consumer food price index (CFPI) in May moved up to 3.1% over the 2.8% logged in the previous month.

The annual CPI in rural areas in May ruled higher at 4.88%, while in urban India, it rose by 4.72%.

Further, the data revealed that retail inflation rate on a year-on-year (YoY) basis rose due to higher prices of food items like vegetables, milk-based products, eggs, meat and fish, as well as increased fuel rates.

On a sub-category basis, vegetables in May became costly by 8.04%, while prices of milk-based products rose by 3.2%.

Other notable sub-categories such as cereals became dearer by 2.78% and meat and fish recorded a rise of 3.53%.

The category of food and beverages during the month under consideration recorded a rise of 3.37% over the same period last year.

Among non-food categories, the "fuel and light" segment's inflation rate accelerated to 5.8% in May.

As per the CSO data on IIP, higher production of the manufacturing sector, especially of capital goods and consumer durables, accelerated the country's industrial output in April by 4.9% from a rise of 4.57% in March 2018.

The corresponding growth during April 2017 stood at 3.2%.

Besides, the data showed that the sequential rise in factory output was mainly on account of higher production in the manufacturing sector.

On a YoY basis, the manufacturing sector expanded by 5.2%, while the mining sector's output rose by 5.1% and the sub-index of electricity generation increased by 2.1%.

"In terms of industries, sixteen out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of April 2018 as compared to the corresponding month of the previous year," the CSO said.

"The industry group 'manufacture of computer, electronic and optical products' has shown the highest positive growth of 27.5% followed by 21.9% in 'manufacture of motor vehicles, trailers and semi-trailers' and 15.7% in 'manufacture of food products'."

"While the rise in consumer non-durables points the revival in rural sector, the increase in consumer durables posted a positive outlook for the urban centres," said industry body Assocham's Secretary General D.S. Rawat.

"Further, the rise in output of capital goods sector is indicative of improvement in investment demand," said Rawat.

In terms of CPI inflation, Rawat stated that higher oil prices and tighter financial conditions will weigh on the pace of acceleration.

"As India imports over two-thirds of its crude requirement, any surge in crude prices has the potential to upset growth projection," he said.

ICRA's Principal Economist Aditi Nayar said: "Headline inflation remains on track to cross 5 per cent in the next reading, peaking at around 5.3% in June 2018, followed by a base effect led softening in the subsequent months." 

"Nevertheless, the dispersion of the monsoon, the revision of MSPs, movement in crude oil prices and the INR as well as evolving fiscal risks, would crucially influence the inflation trajectory."

On industrial production, Deloitte India's Lead Economist and Partner Anis Chakravarty said: "... risks to factory output remain slightly to the upside on expectations of weakening rupee and higher input costs, however some balancing in data prints can be expected if pace of infrastructure and construction picks up as expected."

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