Inflation at record low of 2.18%; factory output slows to 3.1%

India’s retail inflation fell to a five-year low at 2.18% in May, backed by  deflation in food and vegetable prices, and industrial production output slowed to 3.1% year-on-year in April due to manufacturing, mining and power sectors showing poorly.

While vegetable prices declined by 13.44% in May, food inflation declined 1.05%. Lower inflation may put pressure on the Reserve Bank of India to cut key interest rates in its August policy review. The RBI had chosen to maintain a status quo on rates but the move was vehemently criticised by the Finance Ministry.

This time the consumer price inflation is lowest since the government started coming out with separate CPI index in 2012.

Industrial production growth, however, slowed to 3.1% in April compared with last year due to manufacturing, mining and power sectors scoring badly.

The government data showed manufacturing sector, which constitutes nearly 78% of the industrial production index, grew at 2.6%  in April compared with 5.5% in April last year.

Mining sector output grew at 4.2% in April as against 6.7% last year. Power sector output grew by 5.4% compared with 14.4% last year.

The output of capital goods, however, contracted by 1.3% in April compared with a growth of 8.1% a year ago.

Capital goods performance is an indicator of the level of investment taking place in the economy.
Consumer durables too declined by 6% in April against a growth of 13.8% last year. Consumer non-durables, however, grew 8.3% in April.

Meanwhile, the industry reiterated its demand for an interest rate cut by the RBI, saying it was imperative to boost growth and consumer demand.