India’s retail inflation eased to 8.28% in May from 8.59% in the previous month and factory output rebounded to a 13-month high of 3.4% in April, two sets of data released Thursday that could bring cheer to the new government, grappling to push growth and tame prices.
The Index of Industrial Production (IIP) — a broad metric to measure activity in factories across the country— surged in April after contracting for two successive months, buoyed by robust manufacturing, mining, power and capital goods output.
Capital goods output, a proxy for investment activity, grew 15.7% in April after contracting for four staraight months, mirroring that firms may have begun to add capacity lines, expecting demand for goods to pick up.
“The return of industrial growth to the positive terrain has rekindled hopes of an industrial recovery, critical to lift the economy and mark a return to the growth path,” said Chandrajit Banerjee, director-general, CII.
The manufacturing sector, which constitutes over 75% of India’s total industrial output, grew 2.6% in April compared to a growth of 1.8% a year ago.
The fall in retail inflation measured by the consumer price index (CPI) — a metric that captures shop-end prices, was driven by a fall in food inflation to 9.3% from 9.6%. Inflation fell in cereals, which accounts a third of the food basket — to 8.8% in May.
A high probability of deficient rains this summer, however, could push up food inflation.
“A weak monsoon could push up CPI inflation with the weight of farm-related articles accounting for 50% of the CPI,” a report by research firm Crisil says.