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Aug IIP at 9-month high of 4.3%; retail inflation eases to 3.28% in Sept

Subhayan Chakraborty/ Reuters/New Delhi 12 Oct 17 | 06:13 PM

Photo: Reuters

Annual consumer inflation in September marginally eased to 3.28 per cent from a year ago, government data showed on Thursday.

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Industrial production in the country rose to a nine-month high of 4.3 per cent in August in the second month after the new Goods and Services Tax (GST) regime was introduced on July 1.

Both July IIP and August CPI have been revised to 0.9 per cent (from 1.2 per cent) and 3.28 per cent (from 3.36 per cent), respectively.

After registering a 48-month low in June, industrial output in the country had managed to rise by 0.9 per cent year on year in July. 

IIP figures showed that the roll-out of the GST regime did not push industrial production into a negative zone, as some experts had predicted.

In June, the index had contracted by 0.1 per cent, owing to a severe contraction in manufacturing. Before this, the index had last fallen by a wider margin of 1 per cent, back in June 2013.

In August, a rise in manufacturing and growth in mining and electricity helped the recovery.

The manufacturing sector, which constitutes more than three-fourths of the IIP, rose by 3.1 per cent in August. It had fallen by 0.2 per cent in June, after falling by 0.4 per cent in May. However, within the manufacturing segment, 13 of the 23 sub-groups recorded a contraction, as compared to 15 in the previous month.

A significant amount of destocking had happened in June in anticipation of the July GST roll-out, after which the manufacturing segment is expected to rise due to restocking of inventories and return of consumption demand, Madan Sabnavis, chief economist at Care Ratings said.

"Aside from volatile food and fuel prices, core inflation is likely to accelerate," said Shilan Shah, an economist at Capital Economics in Singapore.

"There is also a risk that excessive liquidity in the banking sector could seep into inflation."

"Contrary to street expectations, CPI has fallen sequentially despite the fact that favourable base effect has unwound. This primarily reflects weaknesses in aggregate demand. Even services inflation has moderated marginally. Primary contributors to September inflation are housing & fuels categories, which have hardened due to HRA effect on housing & global crude price effect on fuel prices. This means inflation trajectory remained well below the RBI target in H1, FY18. Yet, the chances for rate cut look distant as IIP growth has accelerated to 4.3%, albeit due to a favourable base effect in capital goods & mining sectors," said Rupa Rege Nitsure, group chief economist, L&T Finance Holdings.

"There is no room or scope for further easing rates for at least 3-4 months. RBI may take a call in March since it clearly sees inflation scaling higher. Rising energy prices and implementation of farm loan waivers aggravates the inflationary pressure. All this will basically impart upside risk to the baseline inflation trajectory. The spike in inflation in August was basically due to a rise in vegetable prices and food commodities ahead of the festive season. Now we see some moderation in food prices.

"There will be improvement in aggregate demand for commodities during festive season," Hitesh Jain, associate vice president- research, IIFL Wealth Management.

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