New Delhi: Retail inflation based on consumer price index (CPI) accelerated to nearly 2 years high of 6.07 per cent in July on surge in prices of food items. This is way ahead of RBI’s comfortable level.
Retail inflation was at 5.77 per cent in June. Meanwhile, industrial output grew by anaemic 2.1 per cent in June on account of poor show by manufacturing and heavy contraction in capital goods production.
A poor industrial growth will lead to demand of rate cut by RBI from industry but inflation above Central bank’s comfortable level is unlikely to result in any relief on monetary policy front any time soon.
Food inflation in July rose to 8.35 per cent from 7.79 per cent in June. Pluses continued to hurt rising at 28 per cent in July and vegetables 14 per cent and sugar and confectionery by 21 per cent. Spices and eggs inflation also rose by 9 per cent in July.
The government has put inflation targeting at 4 per cent with a range of plus/minus 2 per cent for next five years under the new monetary policy framework agreement with the Reserve Bank.
“Although CPI inflation has crossed the upper threshold of the 2-6 per cent inflation target band, the July 2016 print may well emerge as the last of the worrying prints, with a favourable base effect as well as the improved monsoon and kharif sowing dynamics pointing to a easing of food inflation in the coming months,” said Aditi Nayar, senior economist, ICRA.
She said that higher global food prices and the anticipated improvement in domestic demand after the implementation of the pay commission's recommendations pose modest risks to the inflation trajectory.
“ICRA continues to expect lower average CPI inflation in the remainder of 2016 to create space for additional monetary easing of 0.25 per cent (by RBI) in the remainder of this calendar year, irrespective of the composition of the new MPC,” said Nayar.
Meanwhile industrial production data showed that manufacturing sector saw a meagre growth of 0.9 per cent in June compared to 5.2 per cent a year ago.
The capital goods output registered a steep decline of 16.5 per cent in June over a contraction of 2 per cent in last year. Consumer durables grew poorly at 5.6 per cent in June over a contraction of 2 per cent in last year.
