With rise in prices of food items and slow economic activities of the country, retail inflation went up to nearly 2-year high of 6.07 per cent in July, while industrial factory output grew at slow pace at 2.1 per cent in June on account of poor show by manufacturing and heavy contraction in capital goods production.
The inflation number remained well above the central bank’s comfortable level following unprecedented surge in food prices as demand for sugar, oil & fats and spices rose ahead of the festival season. The outgoing Reserve Bank of India (RBI) Governor, Raghuram Rajan, whose term ends on 4 September, left the key policy rates unchanged, flagging upside risks to the inflation target in his last monetary policy review on Tuesday.
The RBI had said that going forward, the strong improvement in sowing on the back of the monsoon’s steady progress along with supply management measures would augur well for food inflation. “The prospects for inflation excluding food and fuel are more uncertain; if the current softness in crude oil prices proves to be transient and as the output gap continues to close, inflation excluding food and fuel may likely trend upwards and counterbalance the benefit of the expected easing of food inflation,” the RBI statement had said.
Keeping growth and manufacturing scenario of the country, India Inc expressed concern on the issue.
As far as retail inflation is concerned, it is based on Consumer Price Index (CPI) which was 5.77 per cent in June and 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.
On industrial growth front, Index of Industrial Production or IIP also had a poor show on account of poor show by manufacturing and heavy contraction in capital goods production, growing by only 2.1 per cent in June, down from 4.2 per cent a year ago. 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 June growth was however higher than 1.1 per cent (revised from 1.2 per cent provisionally) in May. The IIP showed that 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.