June inflation climbs to 5%, factory output growth slips

New Delhi, Jul 12: Driven by higher fuel prices, consumer or retail inflation accelerated to a five-month high of 5% in June, well above May’s 4.87%. This is the eighth straight month that consumer inflation has remained above the Reserve Bank’s 4% target. Economists polled by Reuters had estimated June consumer inflation at 5.30%.
The June inflation numbers support predictions for further policy tightening by the RBI as early as next month. Global oil prices, which have risen more than 20% this year and nearly 13% in June, have been a major factor behind higher inflation in India in recent months. Growing inflation concerns prompted the RBI in June to raise its policy rate for the first time in over four years. The RBI had also raised its inflation projection by 30 basis points to 4.7% by March 2019.
The RBI will also be on guard after the government recently increased minimum support prices for 14 summer crops. The move could increase retail inflation by 73 basis points, depending on the level of procurement, an SBI report said. This also supports predictions for further policy tightening by the RBI next month.
The next meeting of the RBI’s monetary policy committee is scheduled on July 31 and August 1, 2018.
Indranil Pan, group economist at IDFC Bank, said: “A sharp increase in the core inflation and the higher inflation expectations should worry the RBI. We are expecting RBI to raise the policy rate two more times in the current financial year.”
Separately, industrial output as measured by the index of industrial production (IIP) increased 3.2% in May from a year earlier. This was lower than the 4.9% rise in April. Economists polled by Reuters had predicted factory output to grow 5.2% in May. Manufacturing, which contributes 78% of industrial output, grew 2.8% in May, slower than a 5.2% rise in April, as domestic demand slowed. (Agencies)