Double delight: Industrial output up, price rise slows

NEW DELHI: Industrial output growth gathered strength in September and retail inflation cooled to a fresh record low in October providing some signs of an economic revival and bolstering the case for an interest rate cut.
Data released by the Central Statistics Office (CSO) on Wednesday showed industrial output grew a better-than-expected 2.5% year-on-year in September, the fastest in the past three months led by a spurt in the capital goods segment.In August, industrial output rose an annual 0.5%.
Separate data released by the CSO showed retail inflation, as measured by the consumer price index, slowed to a 5.5% in October compared with the previous month's 6.5%. The October figure is the lowest since the government started computing the new series of data in January 2012. Cooling food and fuel prices helped moderate the overall numbers.
The latest retail inflation data puts pressure on the Reserve Bank of India to cut rates when it reviews monetary policy on December 2.
Finance minister Arun Jaitley, in an interview to TOI, had called for a reduction in interest rates against the backdrop of moderation in price pressure. He had said reducing rates would help trigger demand for homes and revive the economy.
The RBI has so far resisted calls for reducing interest rates citing stubborn inflationary pressures but some economists said they expect some easing in the months ahead.
"Both sets of data released this evening were better than expected with CPI easing to 5.5% from 6.5% last month and industrial output rising 2.5% from 0.5%. Given that the pace of normalization in inflation has been relatively faster than that of growth, we maintain our view of cumulative 100 basis poins easing in policy rates by FY16," said Rohini Malkani, economist at Citigroup, India.
India Inc stepped up the pressure for an interest rate cut and said the industrial output data signalled early signs of revival based on what it called "feel good factors and positive investor sentiment."
"We welcome the drop in inflation based on consumer price index and hope this would propel the RBI to reduce policy rates in its forthcoming monetary policy especially as consumer demand continues to be tepid," said Chandrajit Banerjee, director-general at the Confederation of Indian Industry.

The industrial output data showed the capital goods sector, a key gauge of economic activity, rose 11.6% year-on-year in September compared with a decline of 6.6% in the year earlier period and a fall of 9.8% in the previous month.
The consumer segment continued to remain sluggish. Consumer durables contracted an annual 11.3% in September compared to a decline of 10.6% in September 2013 while consumer goods fell an annual 4% compared to an expansion of 1% in the previous year ago period.

Some economists, however, cautioned against reading too much into the sharp moderation in retail inflation.
The inflation data showed the moderation was led largely by softening food prices. Prices of vegetables declined 1.5% year-on-year in October while overall food and beverages prices rose 5.7% year-on-year slower than the double digit levels in the past. However, prices of milk, milk products, fruits and spices continued to witness pressure.
"These numbers should be viewed with caution. First, the base effect is pronounced and will be so in November too when the CPI index peaked. These numbers could turn around in December and January when the index had come down last year. Second, the ministry of agriculture has forecaste lower kharif output for cereals, pulses and oilseeds. This being the case, there could be some upward bias on inflation in the coming months," said Madan Sabnavis, chief economist at Care Ratings.
"There is a strong case for the RBI to consider a rate cut given the continuous decline in CPI inflation numbers in the last few months. However, it has been pointed out that it is not yet time to celebrate lower inflation due to the factors mentioned above. Therefore, while a rate cut would help to assuage sentiment, the RBI may choose to defer the decision for the next review," said Sabnavis.