New Delhi: Industrial production growth accelerated to 7-month high at 5.9 per cent in May, led by better-than-expected expansion in manufacturing output, while the surge in food prices, especially vegetables and pulses, pushed the headline retail inflation to 5.08 per cent in June, the highest in four months, the government data released on Friday showed.
The factory output measured in terms of the Index of Industrial Production (IIP) stood at 5 per cent in April. May figure is the highest since October 2023 when it stood at 11.9 per cent.
Manufacturing sector, which has 77.63 per cent weight in the IIP, posted a year-on-year growth of 4.6 per cent in May. Mining grew at 6.6 per cent while electricity output expanded by 13.7 per cent year-on-year during the month under review, as per data released by the Ministry of Statistics & Programme Implementation.
The Consumer Price Index (CPI) based inflation jumped to 5.08 per cent in June from 4.80 per cent recorded in the previous month. The headline retail inflation, which the Reserve Bank of India (RBI) monitors for its policy action, jumped above the 5 per cent-mark for the first time in four months. The June figure is the highest since February 2024 when it stood at 5.09 per cent.
Food inflation surged to 9.36 per cent in June from 8.69 per cent recorded in May. Price of vegetables soared by 29.32 per cent. Pulses became costlier by 16.07 per cent in June when compared with the same month last year. There was a sharp jump in cereals and fruits prices also.
“Vegetables inflation, which has remained in double-digits for eight months now, is a major worry as is rigidity in foodgrains inflation,” said Dharmakirti Joshi, Chief Economist at CRISIL.
Barring food and beverages, inflation across all the other sub-groups remained below the 4 per cent mark.
The core-CPI (CPI excluding food & beverages, fuel and light and petrol and diesel) rose marginally to 3.35 per cent in June 2024 from 3.28 per cent in May 2024. “This was the seventh consecutive print of a sub-4.0 per cent core inflation print, benefitting partly from the protracted impact of last year’s softening in commodity prices,” said Aditi Nayar, Chief Economist at ICRA.
As per ICRA, the CPI inflation is likely to soften to 2.5-3.0 per cent in July 2024 mainly due to favourable base effect (+7.4 per cent in July 2023), which will partly absorb the impact of the sequential surge in prices of vegetables. The base effect is likely to provide relief to headline inflation in the next three months. Inflation during July-September 2023 was 6.42 per cent
Consumer-oriented goods drove the rise in IIP in May. While consumer durables recorded the strongest growth in May among 6 major manufacturing categories, non-durables also rose after declining in the previous month.
However, infrastructure, construction and capital goods slowed, indicating some cooling of the investment momentum. Central government capital expenditure had slowed in May amid the elections.
“Going forward, industrial growth could be lifted by improving consumption, as rural demand catches up on the back of healthy agriculture,” said CRISIL chief economist Joshi.
Rise in inflationary pressure would further delay the easing in policy rates by the RBI.
“While the food inflation risks will continue to dominate in near term, we expect the better sowing patterns and spatial distribution of rains to eventually ease the price pressures beyond these volatile months,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
“Having said that, the Central Bank will be in no hurry to ease monetary policy given the headroom from robust growth in the backdrop of near term inflation risks,” Bhardwaj added.
“No rate cuts are expected in the forthcoming policy as RBI pursues a target of 4 per cent durable inflation,” said Joshi.