Hitting at a historically-low level, country’s retail inflation cooled down to 1.54 per cent in June from 2.18 per cent in May on the back of softer prices of food items such as vegetables, pulses and milk products. The deflationary trend in consumer prices, however, raised hopes that the Reserve Bank of India (RBI) may cut rates next month to boost the stressed industrial sector.
Meanwhile, industrial output or Index of Industrial Production (IIP) also fell to 1.7 per cent in May from 3.1 per cent in April. However, April IIP was revised to 2.8 per cent from 3.1 per cent, according to data released by the Central Statistics Office (CSO) on Wednesday.
Besides, markets also cheered with key macroeconomic data, setting BSE benchmark Sensex a a record again on Wednesday and went higher by 58 points to 31,805, while the Nifty closed above the 9,800 mark due to rally by banking, oil and gas and auto stocks. Boasting of the deflationary trend on consumer prices, Chief Economic Adviser Arvind Subramanian told reporters on Wednesday, “The number of 1.54 per cent is historically low and reflects the firm and ongoing consolidation of macro-economic stability. The last time we saw such inflation -- according to slightly different CPI (IW) -- was in 1999 and before that in August 1978.”
He suggested that all policy makers should look at data 'very, very carefully. “This paradigm shift in inflationary process has been missed by all, who have made systematic inflation forecast error,” he said, apparently referring to the central bank which has kept the key policy rate unchanged so far this year citing pricing pressures,” Subramanian said, adding that last time India saw such inflation -- according to a slightly different difference CPI series (IW) -- was in 1999, and before that in August 1978.
As industrial output growth slumped to 1.7 per cent in May from 8 per cent a year-ago due to poor performance of mining and manufacturing, he said, “The latest CPI number for June is 1.54 per cent and it is historically low and reflects the firm and ongoing consolidation of macro-economic stability,” Subramanian said.
“This low, heartening number is consistent with our analysis for sometime now -- and which will be fully elaborated in the forthcoming survey -- of a paradigm shift in inflationary process to low levels of inflation -- a shift that I think has been missed by all reflected in large, one- sided and systematic inflation forecast error that have been made,” he added.
Generally, the factory output growth, measured on the IIP, for April-May period decelerated to 2.3 per cent from 7.3 per cent in the same period last fiscal. The CSO data further revealed that output of the capital goods segment, considered as key indicator of investment, shrunk by 3.9 per cent compared to a high growth of 13.9 per cent recorded in May 2016.
The consumer durables segment too witnessed a decline. While mining sector output declined by 0.9 per cent in May against 5.7 per cent growth in the year-ago month, the growth of manufacturing sector slowed to 1.2 per cent from 8.6 per cent in the same month last year.
However, electricity generation expanded by 8.7 per cent in May as against 6.1 per cent growth in the corresponding period last year. As far as retail inflation is concerned, fruits too were dearer on monthly basis. The retail inflation in the fuel and light segment slowed to 4.54 per cent as compared to 5.46 in May. The RBI mainly factors in retail inflation to arrive at its monetary policy, which is slated to meet in early August to announce the next bi-monthly policy rate. The last policy review was in June.