Inflation snaps easing trend, rises in April as factory output crawls

April retail inflation rises to 5.39% from 6-month low, March factory output crawls; eyes on RBI, rains

Signalling that the economy may not have turned the corner fully yet, India’s retail inflation rose to 5.39% in April snapping a three-month easing trend driven by costlier food, while factory output crawled at 0.1% in March.

A vegetable market in Shimla. India's food price inflation index shot up by 6.32% in April(REUTERS)

A high inflation rate will likely weaken the chances of an interest rate cut in the Reserve Bank of India’s (RBI’s) monetary policy review next month.

Retail inflation, a gauge to measure changes in shop-end prices, was 4.83% in March, the lowest in six months, and costlier food items have pushed up the overall inflation again.

Consumer food price inflation, a metric to measure changes in household kitchen budgets, grew 6.32% in April from 5.21% in the previous month, data released on Thursday showed.

Pulses, a common source of protein for most Indians, grew 34.13% in April from 38.30% in March.

The consumer price index-based inflation rate, which the RBI tracks for interest rate decisions, acts as a proxy for changes in shop-end prices and is now inching towards the central bank’s short-term threshold of 6%.

Experts said the rise in inflation was not a good sign.

“On the price front, the pickup in retail inflation is indeed worrisome. With this rise, it is quite likely that another rate cut by the RBI is not going to come anytime soon,” said Sunil Sinha, principal economist, India Ratings & Research, a credit rating and research firm. “Much of course would depend on the way monsoon unfolds as the spike in retail inflation once again is from food inflation,” Sinha said.

Factory output, measured by the Index of Industrial Production (IIP), grew at 0.1% March from 2% in the previous month, pummelled by a (-)1.2% drop in the manufacturing sector.

This partly mirrors plunging overseas shipment orders that may have forced factories to cut back production.

Capital goods output, which acts as a guide for additional investment activity, contracted (-)15.4%, signs that companies aren’t really adding capacity lines due to muted demand.

Business leaders called for policy push to revive industrial activity.

“It is evident from the data now that the weak consumer and investment demand has started impacting the growth of manufacturing more than exports,” said Harshavardhan Neotia, presidentof industry body FICCI. “The growth in manufacturing may take more time to pick up. Therefore, it’s important that the government holistically addresses the issues related to manufacturing by a high-level institutional mechanism involving all departments and states.”