Retail inflation tops 6%

IIP revives to grow at 8-month high

Macro indicators gave mixed signals on Friday, tilting towards the worrying side on the health of the economy. While industrial production grew by 2.1 per cent in June, the fastest in eight months, the CPI-based inflation rose to 6.07 per cent in July on a steep increase in food prices, the highest since the new series was introduced in Decem-ber 2014. After a rise in June following 18 months of contraction, merchan-dise exports again fell in July, by 6.84 per cent, as Brexit vote fuelled further global uncertainties.

The data justified the policy stance of the last monetary review by the Reserve Bank of India Governor Raghuram Rajan as concerns over inflation in the economy undermined uptick in industrial growth.

In fact, recovery in industrial growth was not broad-based. The CPI inflation was up by 0.30 percentage points in July from 5.77 per cent in the previous month. The government had launched new CPI series in December 2014 with a revised base of 2012 and slightly changed weights of various items.

Food inflation jumped 0.56 percentage points just in a span of one month to 8.35 per cent in July, compared with 7.79 per cent in June. This was despite the fact that inflation in vegetables inched down, though it remained at an elevated level of 14.06 per cent in July, compared with 14.74 per cent in June. The rate of price rise in pulses was up at 27.53 per cent against 26.86 per cent in June. The price pressure in pulses is likely to come down once Kharif crops are harvested. The area under pulses rose to 13.02 million hectares as on August 12 this year against 9.77 million hectares in the corresponding period of the previous financial year.

However, if inflation continues to remain over 6 per cent from August onwards for three consecutive quarters, RBI will have some explaining to do under the new mechanism of inflation targeting. The next repo rate would be fixed by the proposed monetary policy committee. Despite recovery, the index of industrial production (IIP) grew by just 0.6 per cent in the first quarter of 2016-17 against 3.3 per cent in the same quarter of the previous year because of the fall in the index in April this year.

Industrial production rose despite capital production declining for the eighth month in a row. In fact, the contraction gathered pace at 16.5 per cent in June from 12.3 per cent in May. However, fast moving consumer goods recovered to grow by one per cent in June against contraction in the previous two months.

Merchandise exports fell to $21.68 billion in July this year against $23.28 billion in the same month last year.