Inflation accelerates to 6.07 per cent in July Factory output shrinks to 0.6% in Q1 vs 3.3%

Poor show by manufacturing

• Industrial output grew by 2.1% in June, down from 4.2% a year ago, on account of poor show by manufacturing and heavy contraction in capital goods production
• Food inflation during the month rose to 8.35%, up from 7.79% in June
• Retail inflation, based on Consumer Price Index (CPI) was 5.77% in June. In July 2015, it was at 3.69%.

 

Tribune News Service

New Delhi, August 12

Crossing the 6% threshold, retail inflation shot up to nearly two-year high of 6.07% in July, but analysts said it is expected to ebb in coming months as food prices stabilise.

Revival of investment demand remains muted as industrial output grew by 2.1% in June, down from 4.2% a year ago, on account of poor show by manufacturing and heavy contraction in capital goods production.

Retail inflation, based on Consumer Price Index (CPI) was 5.77% in June. In July 2015, it was at 3.69%. It crossed the 6% which is the RBI’s comfort level, on surge in prices of food items like sugar, oil and fats and spices rose ahead of the festival season. Inflation was the highest since September 2014, when it was at 6.46%. Food inflation during the month rose to 8.35%, up from 7.79% in June.

Aditi Nayar, senior economist, ICRA Limited, said although CPI inflation has crossed the upper threshold of the 2-6% inflation target band, the July print may well emerge as the last of the worrying prints, with a favourable base effect as well as the improved monsoon and kharif sowing dynamics pointing to easing of food inflation in the coming months.

Upasna Bhardwaj, senior economist, Kotak Mahindra Bank, said while inflation has surprised on the upside, recent high frequency data suggests ebbing of food prices. “We continue to maintain that the recent surge in food price pressures will begin to fade in the following weeks and a favourable base effect will keep the second half of FY17 inflation trajectory in the comfort zone,” she added.