IIP at 3-month high, inflation cools to 5.5%; all eyes on RBI

Reflecting improvement in economy, industrial output grew to three-month high of 2.5 per cent in September, while retail inflation cooled to 5.5 per cent in October, prompting the industry to step up the demand for a cut in interest rate by the Reserve Bank.

Factory output, measured in terms of Index of Industrial Production (IIP), showed an improvement mainly because of an uptick in mining and manufacturing production and larger offtake of capital goods.

The IIP had risen to 2.7 per cent in September last year.

Commenting on IIP, Commerce Minister Nirmala Sitharaman in a tweet said: "Economy showing signs of picking up."

As regards retail inflation, the Consumer Price Index (CPI) fell in October to 5.52 per cent, the lowest since the government started computing the new series of data in January 2012, as prices of some food items declined.

"Drop in inflation based on consumer price index... would propel the RBI to reduce policy rates in its forthcoming monetary policy, especially as consumer demand continues to be tepid,"  CII Director General, Chandrajit Banerjee said.

"The inflation data is very encouraging. It is little below what the market was expecting....It is building a case for a rate cut... a rate cut is very possible," said Abheek Barua, Economist with ICRIER.

The Reserve Bank of India (RBI) is scheduled to announce its fifth bi-monthly monetary policy statement on December 2. It has so far maintained tight money policy to tame inflation.

As per IIP data, released by the Central Statistics Office today, manufacturing output, which constitutes over 75 per cent of the index, grew to 2.5 per cent in September, compared to 1.4 per cent in the same month a year ago.

For April-September, manufacturing saw an output growth of 2 per cent, against to 0.2 per cent in the year-ago period.

The mining sector production grew by 0.7 per cent in September as against of 3.6 per cent a year ago. The growth is 2.1 per cent in April-September.
The factory output growth in August has been revised to 0.48 per cent from the provisional estimates of 0.42 per cent released last month.
The industrial production expansion grew 0.4 per cent in July this year.
In April-September, IIP rose to 2.8 per cent.


Overall, 15 of the 22 industry groups in manufacturing showed positive growth in September.

Production of capital goods, a barometer of demand, grew by 11.6 per cent in September, against 6.6 per cent decline in same month of last year.
Power generation grew by 3.9 per cent in September compared to 12.9 per cent in the same month last year.

However, consumer goods output contracted by 4 per cent in September against 1 per cent growth logged in the year ago period.

The consumer durables segment declined by 11.3 per cent in September, as against a dip of 10.6 per cent a year ago.

Consumer non-durable goods output grew by 1.5 per cent in September, compared to 12 per cent growth in same month last year.

The intermediate goods' output grew by 1.8 per cent in September compared to 4.4 per cent growth in the same month last year. The basic goods production too grew by 5.1 per cent in the month under review compared to 6.7 per cent growth in same month last fiscal.

As regards the retail inflation, this is the fourth consecutive month of decline (October) in the Consumer Price Index which had fallen to 6.46 per cent in the previous month.

"Fall in consumer goods growth is disturbing and we urge Government to take steps to arrest this fall. Faster implementation of large projects and improvement in business regulatory environment are required to have a sustainable growth in industry in the long run", President-elect of FICCI Jyotsna Suri said.

The overall food inflation measured on CPI came down to 5.59 per cent in October as against 7.67 per cent in the previous month.