Retail inflation in rural areas rose 6 per cent, while in urban areas it grew 4.7 per cent

Retail inflation accelerated in April on the back of hardening prices of some food items, while industrial output growth slowed in March, raising fresh worries for policy makers battling to boost growth and tame price pressures.
Retail inflation in rural areas rises to 6 percent

Retail inflation accelerated in April on the back of hardening prices of some food items, while industrial output growth slowed in March, raising fresh worries for policy makers battling to boost growth and tame price pressures.

Data released by the Central Statistics Office (CSO) on Thursday showed the consumer price index rose 5.4 per cent in April, faster than the previous month's 4.8 per cent rise. The consumer food price index increased 6.3 per cent in April from the previous month's 5.2 per cent. Price of pulses surged 34.1 per cent in April, while sugar and confectionary rose 11.2 per cent year-on-year during the month. Retail inflation in rural areas rose 6 per cent, while in urban areas it grew 4.7 per cent.

Economists said they expect the RBI to hold rates. According to them, monsoon holds the key to the inflation trajectory in the months ahead. “The drought-like conditions in several districts are unlikely to allow a respite in food inflation until monsoon rains cover a significant portion of the country. Notwithstanding the dismal performance of manufacturing in March 2016, the uptick in headline as well as core CPI inflation in April 2016 have reduced the likelihood of a rate cut in the upcoming policy, unless the monsoon delivers a positive surprise,” said Aditi Nayar, senior economist at ratings agency ICRA.

Separate data showed industrial output growth slowed to 0.1 per cent in March from previous month's 2 per cent expansion. Industrial growth had rebounded in February after three consecutive months of contraction. Industrial growth for 2015-16 was 2.4 per cent year-on-year compared to 2.8 per cent in 2014-15.

The performance of the industrial sector was dragged down by a decline in the mining and manufacturing sectors. The electricity sector was the bright spot, which rose 11.3 per cent in March compared to 2 per cent in the same month last year. The decline in the mining sector was the first since June 2015.

The capital goods sector, a key gauge of industrial activity, fell 15.4 per cent in March compared to an expansion of 9.1 per cent in the year-ago period. This sector has remained volatile for a significant period.

Consumer durables posted robust growth of 8.7 per cent in March compared to a contraction of 4.7 per cent in March 2015, while the consumer non-durables sector fell 4.4 per cent during the month compared to a growth of 1.9 per cent during the corresponding period of last year.

Economists said they expect a turnaround in the months ahead. “The lagged impact of interest rate reductions, salary revisions and easier monetary conditions will also support demand and boost industrial capacity utilization,” ratings agency Crisil said in a note. “We expect GDP to rise to 7.9 per cent in fiscal 2017 from 7.6 per cent in fiscal 2016 and industry GDP to grow at 7.6 per cent driven by manufacturing and construction activity,” the agency said.

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