Factory output shrinks, inflation cools, revive rate cut hopes

Factory output contracted by 2.4 per cent in July in its worst performance in eight months while retail inflation cooled to five-month low of 5.05 per cent, reviving hopes for a rate cut by RBI to boost growth.
The official data released today showed that the retail inflation fell below the 6 per cent level, largely on account of a slower rate of price increase in vegetables, food and beverages, from nearly a two-year high of 6.07 per cent in July.
The latest reading of price rise, based on the consumer price index (CPI), is the lowest since March 2016 when it stood at 4.83 per cent. In August 2015, it was 3.74 per cent.

Registering a dismal show, industrial production shrank 2.4 per cent in July, the lowest level in eight months, due to a declining output in manufacturing and capital goods sectors.
On a cumulative basis, the factory output in April-July dropped by 0.2 per cent compared with 3.5 per cent growth in the year-ago period.
Enthused by easing retail inflation, Economic Affairs Secretary Shaktikanta Das exuded confidence that RBI will take into account improvement in the price situation while deciding on a rate cut in its next policy review due on October 4.

"With regard to the rate cut, there is a direct relationship between the inflation figures and policy rates of the Reserve Bank. So, inflation has moderated as expected. I would therefore expect RBI to take this into consideration and take its call... I'm sure they will consider all the aspects and take a call," Das told reporters here.

On the twin macroeconomic data, an industry chamber said, "We look forward to calibrated policy measures from RBI in terms of reduction in policy rates. We also look forward to increase in public investments by the government to help domestic demand revive."
According to IIP data, the previous low was witnessed in November last year when the factory output shrank by 3.4 per cent. Factory output, measured in terms of the index of industrial production (IIP), had grown by 4.3 per cent in July last year.