India's retail inflation unexpectedly edged up to a 17-month high in January, while industrial production contracted at a faster-than-expected pace in December, underscoring imbalances lurking in Asia's third-largest economy.
Retail prices rose 5.69 per cent on year in January, their fastest pace since August 2014, government data showed on Friday (12 February). The rise compared with a 5.4 per cent increase predicted by analysts in a Reuters poll and a 5.61 per cent annual gain in December.
Output at factories, utilities and mines shrank an annual 1.3 per cent in December, another release showed, steeper than 0.1 per cent fall forecast by economists surveyed by Reuters. The contraction, however, was smaller than a revised 3.4 per cent fall in November.
The decline in December has been primarily on account of a massive drop in output of capital goods which showed a contraction of 19.7 per cent in December compared to growth of 6.1 per cent in the same month a year ago.
The manufacturing sector, which accounts for over 75 per cent of the index, declined by 2.4 per cent against a growth of 4.1 per cent in December 2014.
However, the mining sector showed an improvement, registering a growth of 2.9 per cent in the month as against a contraction of 1.7 per cent in same month a year ago.
Power generation showed deceleration, recording a growth of 3.2 per cent as against 4.8 per cent growth in same month a year ago.
As per the used based classification, basic goods reported a marginal increase of 0.5 per cent as against 5.9 per cent in December 2014.
The consumer goods output increased to 2.8 per cent as against 0.6 per cent in December last fiscal.
Consumer durables, however, showed robust growth of 16.5 per cent in December as against a contraction of 9.2 per cent during the same month last fiscal.
However, the consumer non-durable segment showed a contraction of 3.2 per cent in December as against a growth of 5.6 per cent in the corresponding month.
Data shows no let-up in food inflation. Retail food prices were up 6.85 per cent on the year in January, compared to 6.40 per cent in December.
With the government set to hike salaries and pensions of its employees later this year, demand-driven price pressures are likely to get a boost.
That could make it tougher for the central bank to tamp down retail inflation to 5 per cent by March 2017, diminishing hopes for further rate cuts.
"We think that the window for further easing ... has shut," said Mark Williams, chief Asia economist at Capital Economics, after the data release.
The Reserve Bank of India (RBI) kept its policy rate on hold at 6.75 per cent earlier this month. Williams expects the central bank to keep rates unchanged throughout 2016.
IMBALANCESFriday's data comes days after the economy posted growth of 7.3 per cent in the quarter through December, faster than the 6.8 per cent growth posted by China in the same quarter.
The data had shown consumption outpacing investments, signalling potential inflationary risks.
Industrial output data further underscored that risk as capital goods production, a proxy for investments, fell nearly 20 per cent year-on-year in December. Consumer goods, a gauge for consumer spending, grew 2.8 per cent.
It piles pressure on Finance Minister Arun Jaitley to unveil measures when he presents the federal budget on February 29 to revive private investments, which have been dormant for the past four years.
His strategy to stimulate corporate spending through debt-fuelled higher public investment has yet to bear fruits.
Jaitley is under pressure to relax fiscal deficit targets in the budget and ramp up public spending to give the economy more momentum.
But RBI Governor Raghuram Rajan has cautioned against straying from fiscal consolidation, saying the move would jeopardise the country's economic stability at a time of global market turmoil.
(Reuters / PTI)
