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There was positive news on inflation as well as industrial output front on Tuesday. The headline retail inflation eased to 6.83 per cent in August from a 15-month high of 7.44 per cent in the previous month, while July’s industrial production growth jumped to 5.7 per cent from 3.7 per cent in June.
The acceleration in growth of industrial output was led by improvement in all three sectors — manufacturing, mining and electricity.
Manufacturing, which accounts for over three-fourths of the Index of Industrial Production, posted a growth of 4.6 per cent in July, up from 3.1 per cent in the previous month. Mining output growth was the highest in 14 months. It posted a growth of 10.7 per cent in July against a contraction of 3.3 per cent in the same month last year.
Inflationary pressure eased in August largely due to softening in price rise of food items. Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, eased to 9.94 per cent in August from 11.51 per cent in July.
"We expect headline consumer inflation to move down in September as vegetables, particularly tomatoes, have seen a sharp correction," said Dharmakirti Joshi, Chief Economist, CRISIL.
Despite the decline, the headline retail inflation remained above the Reserve Bank of India’s upper tolerance limit of 6 per cent for the second month in a row, firming up expectations that the Monetary Policy Committee will hold interest rates for the time being.
"Notwithstanding the reversal of the relatively transient spike in tomato prices, the outlook for food inflation remains on edge on account of other vegetables like onions as well as kharif crops with a year-on-year lag in sowing such as pulses," said Aditi Nayar, Chief Economist at ICRA.
Core inflation (excluding food and beverages, fuel and light and petrol and diesel) eased marginally to 5.06 per cent in August from 5.12 per cent in the previous month, the third consecutive month of decline.
The impact of price rise was uneven across states. Inflation in 12 states during the month under review was higher than the national average. The annual price rise in August was the highest in Rajasthan with inflation at 8.6 per cent. The lowest inflation was in Delhi at 3 per cent. Measures like supplying tomatoes at subsidised prices helped in keeping inflationary pressure low in Delhi.
The annual retail inflation stood at 7.85 per cent in Karnataka during August. Inflation in rural Karnataka stood at 8.76 per cent while for urban Karnataka, it was 7 per cent.
Analysts said inflation is likely to decline sharply in September helped by a cut in cooking gas prices and softening prices of vegetables. The recent measure to lower LPG prices will have a 0.2-0.25 per cent impact on inflation in September, said Madan Sabnavis, Chief Economist at Bank of Baroda.
According to SBI Group Chief Economic Advisor Soumya Kanti Ghosh, retail inflation is likely to ease to around 5.5 per cent in September, coming within the RBI’s comfort zone.