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Double blow: Costly food, slowing industry

Prices of vegetables, eggs and meat across India rose more sharply in July than in June, data released revealed, pegging retail inflation close to the worrying 10% mark and further limiting the chances of a cut in interest rates. HT reports. City cries onion tears

business Updated: Aug 13, 2013 03:13 IST
HT Correspondent

Prices of vegetables, eggs and meat across India rose more sharply in July than in June, data released on Monday revealed, pegging retail inflation close to the worrying 10% mark and further limiting the chances of a cut in interest rates.

To make matters worse, India's factory output fell by 2.2% in June, its second monthly decrease in as many months, underlining the fact that the country is stuck with the toxic combination of low growth and high inflation.

Making borrowing more expensive by raising interest rates may address the issue of higher prices and would help arrest a fall in the rupee, but would likely hurt growth further.

India's retail inflation measured by the consumer price Findex (CPI)-a more realistic gauge than wholesale inflation as it captures shop-end prices-stood at 9.64% in July, marginally lower than 9.87% in the previous month.

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But vegetables turned dearer at a faster 16.40% in July compared to 14.55% in June. Eggs, fish and meat prices went up by 13.82% in July versus 12.69 % in June.

The latest price data mirrored the rising cost of staples in India as heavy rains disrupted supplies and crop across regions pushing up costs.

"Vegetable prices are also going up because of heavy rain," said the chairman of the Prime Minister's Economic Advisory Council, C Rangarajan.

Factory output, measured by the index of industrial production (IIP), continued to remain sluggish in June as firms pushed back investment plans.

Capital goods output contracted for the third month in a row and stood at -6.6% in June, reflecting the subdued investment climate.

Consumer goods output in June fell by 2.3 % compared to a year ago, reflecting a sharp slowdown in purchase of goods such as cars and televisions, weighed down by slower income growth, high interest rates and high retail inflation.

"Weak domestic demand, supply-side bottlenecks and policy uncertainty, especially those related to fuel availability, land acquisition and environmental clearances have hurt private sector investments and dampened industrial activity," credit rating firm Crisil said in a research report.

There was a silver lining though. Exports grew 11.64% in July amid signs of a budding recovery in Europe and the United States, which holds out hopes of stronger shipment orders from India and precious dollars, critical to halt a 15% fall in the rupee since May.

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