IIP growth dips 2.1%; retail inflation shoots up to 6.07%

Raising concerns about cost of credit and pick up in economic activity, retail inflation soared to 23-month high of 6.07 per cent in July on higher food prices, while factory output grew at a subdued rate of 2.1 per cent in June.
The data, released by the government today, may lead to stronger calls by the industry for an interest rate cut to lower cost of capital and boost economic demand, though spike in inflation may lower the chances of any such move as the rate of price rise has exceeded RBI's comfort zone.
Industrial production data -- better than a growth rate of 1.1 per cent in previous month but sharply below 4.2 per cent a year ago -- showed a poor performance of manufacturing sector as also a heavy contraction in capital goods output.

The retail inflation measured by Consumer Price Index, continued to move northwards on account of rising food prices as demand for sugar, oil & fats and spices rose ahead of the festival season.
"Revival of investment demand remains an area of concern as reflected in the steep decline of capital goods sector in the first quarter," Ficci Secretary General A Didar Singh said.
"Initiatives taken by the Government to address the structural issues that impact manufacturing sector growth need to continue and stepped up to ensure that growth in manufacturing accelerate," he added.

According to the data, factory output, measured in terms of the Index of Industrial Production (IIP) grew at 4.2 per cent in June, 2015.

On cumulative basis, the factory output in the April-June quarter grew by 0.6 per cent compared to 3.3 per cent growth in the year-ago period.
The manufacturing sector that constitutes over 75 per cent of the index saw a meager growth of 0.9 per cent in June compared to 5.2 per cent a year ago.
For the April-June quarter, this sector's output showed contraction by 0.7 per cent, as against a growth of 3.7 per cent a year ago.
Growth in output of consumer durables decelerated to 5.6
per cent in June compared to 16.1 per cent a year ago. The consumer non-durable goods also recorded low growth of 1 per cent in June compared to 2.3 per cent a year ago.

Overall, consumer goods production recorded a growth 2.8 per cent in June compared to 7.2 per cent a year ago.
Power generation however recorded an impressive growth of 8.3 per cent in June compared to 1.2 per cent in the same month a year ago.
The mining sector recorded a growth of 4.7 per cent in June year as against a contraction of 0.4 per cent a year ago.
In terms of industries, 18 out of 22 industry groups in the manufacturing sector have shown positive growth during the month of June.
As per Use-based classification, the growth rates in June 2016 over June 2015 are 5.9 per cent in Basic goods, (-)16.5 per cent in Capital goods and 6.1 per cent in Intermediate goods.

The data further showed that the retail inflation, based on Consumer Price Index (CPI) was 5.77 per cent in June. In July 2015, it was at 3.69 per cent. Inflation was highest since September 2014, when it was at 6.46 per cent.
Food inflation during the month rose to 8.35 per cent, up from 7.79 per cent in June.
Government has put inflation targeting at 4 per cent with a range of plus/minus 2 per cent for next five years under the new monetary policy framework agreement with the Reserve Bank.
In July, sugar and confectionery inflation rose to 21.91 per cent (against 16.79 per cent in June); oil and fats to 4.96 per cent and spices to 9.04 per cent.

There was an uptick in prices of cereals and products with inflation standing at 3.88 per cent, while that for eggs shot up to 9.34 per cent (against 5.51 per cent).
Milk and products, also used as key ingredient for making eatables during festival, saw inflation rising to 4.13 per cent in July (from 3.43 per cent).
Starting August, various festivals are celebrated in different parts of the country leading to higher sales of commodities ranging from sweets, fruits and food items.
Inflation in fruits, vegetables and pulses was 3.53 per cent, 14.06 per cent and 27.53 per cent respectively.

CPI inflation for urban sector was 5.39 per cent in July, while that for rural segment it was 6.66 per cent.