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Inflation at 4-month high in Feb, factory production slows down in Jan

Press Trust of India  |  New Delhi 

inched up to a four-month high of 2.57 per cent in February, though it is still below the RBI's benchmark, raising hopes of another round of rate cut in April to boost industrial growth which slipped to 1.7 per cent on account of sector slowdown.

According to the data released by the (CSO), the Index of Industrial Production (IIP) expanded by just 1.7 per cent in January, significantly down from 7.5 per cent growth in the year-ago month.

The CSO, however, revised marginally upwards the IIP growth number for December 2018 to 2.6 per cent from the earlier estimate of 2.4 per cent.

Slowdown in industrial production notwithstanding, a marginal increase in inflation raised the clamour for another round of rate cut by the Reserve on April 4 to boost economic activity. The central had reduced the key lending rate (repo) by 25 basis points in February.

Following the RBI rate cut, many banks announced up to 10 basis point reduction in their lending rates.

Another set of data released by CSO showed that based on Consumer Price Index (CPI) inched up mainly due to firming up of

Though Headline (inflation) is showing an increase, the core CPI component moderated again to 5.3 per cent in February 2019 from January 2019 level of 5.36 per cent, the country's largest said in a research report.

The number for February 2019 is the highest since October 2018 when it stood at 3.38 per cent, the data released by the under the (MoSPI) showed.

On monthly basis, moved up by 0.15 per cent in February against January 2019.

was lower at (-) 0.66 per cent in February against 3.26 per cent in the same month last year. The retail inflation in February 2018 was at 4.44 per cent.

In fuel and light category, the rate of price rise slowed to 1.24 per cent from 2.20 per cent in January.

On IIP, said the numbers are disappointing.

The growth rate of sector dropped sharply to 1.3 per cent in January from 8.7 per cent in January 2018. There was also slump in the power generation segment as the expansion was almost flat at 0.8 per cent compared to 7.6 per cent in the year-ago month.

However, the silver lining was the sector which grew by 3.9 per cent in January this year compared to 0.3 per cent in the year-ago period.

Giving more details about the factory output in the country, the CSO said capital goods segments, considered to be barometer of investment, and the intermediate goods segment witnessed a contraction.

Data also revealed that both growth in production of consumer durable and non-durable goods grew at a slower rate in January compared to the year-ago period.

The IIP growth during April-January period of the current fiscal stood at 4.4 per cent compared to 4.1 per cent in the same time frame a year ago.

Commenting on the data, B Prasanna, Head, Global Markets Group, said industrial growth dipped below expectations in January 2019, with and decelerating considerably.

On monetary policy, Prasanna said: "We expect another rate cut in the April meeting and subsequent action would be data dependent."

Ranen Banerjee of India opined that lower IIP numbers and inflation of slightly over 2.5 per cent give headroom for further monetary policy action by the central bank.

also suggested that the latest CSO data calls for a rate cut.

"...there clearly is a case and space for one more rate cut of 25 bps by RBI in April to support growth," she said.

The six-member (MPC) of the RBI will meet for three days and announce the first bi-monthly monetary policy of the next fiscal on April 4.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, March 12 2019. 21:05 IST