Aug IIP growth at 3-year high, but inflation still a worry

India’s August industrial output sprang a positive surprise, leapfrogging from 0.5 per cent to 6.4 per cent year-on-year, but the retail inflation in September showed an up-tick by growing at 4.41 per cent due to rise in food prices, especially pulses.

Industrial production growth was faster on a month-on-month basis too. In July, the index of industrial production (IIP) registered at 4.2 per cent. The robust industrial output growth came on the back of a better-than-expected performance of capital goods, manufacturing and mining sectors.

While the manufacturing sector grew by 6.9 per cent in August, that of mining sector grew at 3.8 per cent year-on-year. The capital goods output grew at 21.8 per cent, as against a contraction of 10 per cent in August, last year.

Decline in the prices of raw materials, due to slower international commodity prices, has helped the industrial sector to perform better, according to analysts.

However, growth in power generation halved at 5.6 per cent in August, as compared with 12.9 per cent year-on-year.

Consumer price inflation, on the other hand, rose in September after a record low fall of 3.66 per cent in August. However, the retail inflation remained within the Reserve Bank of India’s comfort zone. RBI’S target for the retail inflation by January next year is 5.8 per cent.

Inflation in pulses rose to 29.76 per cent in September. An uncertain monsoon has had its impact on production of pulses this year, most of which are selling above Rs 150 per kg. The government, however, has recently ordered import of 5,000 tonnes of pulses, and has also asked cooperative market agencies to sell the commodity at cheaper rates.

Inflation in the food and beverages category too was two times higher at 4.29 per cent in September, followed by inflation in cereal. Spices too became costlier.