industrial output growth: Factory output surges to 21-month high, inflation worries rise
NEW DELHI: Industrial output growth raced to a near two-year high in November, powered by a robust manufacturing sector, while retail inflation soared to a 17-month high in December on the back of sticky food and fuel prices, dashing hopes of an immediate interest rate cut by the Reserve Bank of India (RBI).
Data released by the Central Statistics Office (CSO) on Friday showed industrial output grew an annual 8.4 per cent in November, sharply higher than the downwardly revised 2 per cent in the previous month and 5.1 per cent a year ago.
The manufacturing sector rose an impressive 10.2 per cent in November compared with 4 per cent in November 2016 while the capital goods sector, which is seen as a key gauge of industrial activity, rose an annual 9.4 per cent in November, higher than the 5.3 per cent posted in the year earlier period.
“The extent of the uptick in IIP growth in November 2017 was far sharper than our expectation (5.7 per cent), reflecting a favourable base effect as well as inventory rebuilding after the festive season, raising some concerns regarding its sustainability beyond the third quarter of 2017-18,” said Aditi Nayar, principal economist at rating agency ICRA.
She said the pick-up in the growth of infrastructure and construction goods to a 56-month high benefitted from the double-digit expansion in steel and cement output. A spate of recent data has pointed to some improvement in the manufacturing sector as businesses adjust to the goods and services tax (GST).
Some economists said the November data should be read with caution.
“The direction is right but the quantum of increase appears exaggerated. One has to interpret this data with caution. The IIP series has generally been very volatile,” said D K Joshi, chief economist at ratings agency Crisil.
The numbers, however, indicate that the industrial sector may be shrugging off the impact of demonetisation and GST rollout issues. If the momentum continues, it augurs well for overall economic growth and will result in an investment pick up in the months ahead. But a sudden surge in demand will also put further pressure on prices.
Separate data released by the CSO showed retail inflation as measured by the consumer price index rose an annual 5.2 per cent in December, higher than the previous month’s 4.9 per cent. Food inflation rose an annual 5 per cent compared with 1.4 per cent in December 2016. Vegetable prices rose 26.4 per cent in December while fuel and light prices shot up 8 per cent during the month. Rural inflation rose 5.3 per cent during the month while urban inflation was 5 per cent.
“A rate cut by RBI can be ruled out; and based on the trajectory in the next few months, a rate hike could be the next rate action. But it would be status quo in February,” said Madan Sabnavis, chief economist at CARE Ratings.