India's headline inflation broke a recent slowing trend in April, reducing the odds of further interest rate cuts next month by the Reserve Bank of India, even as industrial output expanded at a much-slower-than expected pace in March.
Consumer price inflation, which the Reserve Bank of India (RBI) targets in setting interest rates, rose at a faster-than-expected pace, to 5.39 per cent last month, from 4.83 per cent in March.
It was the first pickup in retail inflation since January.
The pace of price gains in April was driven mainly by higher food costs. An early summer heat wave led to an increase of 3.8 percent in month-on-month prices for staple vegetables.
Overall retail food inflation came in at 6.32 per cent, compared with 5.21 per cent in March.
Industrial production, grew an annual 0.1 per cent in March, sharply slower than growth of 2.5 per cent predicted by economists in a Reuters poll.
Output at factories, mines and utilities expanded 2.0 per cent in February on the year, its fastest pace in four months.
For the entire 2015-16 fiscal, the factory output grew at 2.4 per cent, down from 2.8 per cent in the previous fiscal.
The manufacturing sector, which accounts for over 75 per cent of the index, declined by 1.2 per cent in March against a growth of 2.7 per cent in same month a year ago. The sector has not done well in 2015-16 as it grew at meager rate of 2 per cent compared to 2.3 per cent in previous year.
Mining sector output too contracted by 0.1 per cent in March compared to a growth of 1.2 a year ago. In 2015-16, the sector grew at 2.2 per cent up from 1.1 per cent in previous fiscal.
However, the power sector performed well recording a robust growth of 11.3 per cent in March up from 2 per cent year ago. During the financial year as a whole, power generation recorded a growth of 5.6 per cent, down from 8.4 per cent in 2014-15.
Capital goods segment, which is a barometer of investment, contracted by 15.4 per cent in March as against a growth of 9.1 per cent year ago. During 2014-15, the output of these goods also declined by 2.9 per cent compared to a growth of 6.3 per cent in previous fiscal.
Overall, 12 of the 22 industry groups in manufacturing sector showed positive growth in March 2016 as compared to a year ago.
Slowing inflation prompted the RBI to cut the policy repurchase rate last month by 25 basis points to 6.50 percent, the lowest since 2011.
But with the central bank more focused on monetary transmission, it is widely expected to keep the rate on hold at a scheduled policy review on June 7.
"The outturn does not alter our assumption of a prolonged pause from the RBI in terms of policy rate fixings," said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership Ltd.
RBI chief Raghuram Rajan aims to cap retail inflation at 5 per cent by March 2017.
A big increase in wages and pensions of government employees later this year and a hike in service tax rates are expected to stoke price pressures, but subdued rural demand, coupled with prospects of good summer rains, could provide a buffer.
That should allow room for another 25 basis point rate cut. A recent
Reuters poll predicted the RBI would deliver one more rate cut towards the end of this year.
Shubhada Rao, chief economist at Yes Bank, however, expected summer monsoon rains to have a greater influence on the RBI's future course of action.
"The critical game-changer would be the monsoon," she said. "If it's delayed, or there is further downward revision, then it spells bad news for the scope of a rate cut."
The monsoon delivers 70 per cent of India's annual rainfall, critical for its summer-sown crops.
(Reuters / PTI)
