Retail inflation in India registered record low of 2.2% in May due to cheaper food products, while industrial production rose at a slower pace in April, raising demands for a rate reduction by the RBI.
Latest data showed that industrial production expanded by 3.1% in April, compared to 3.8% in March and 6.5% a year ago as mining and electricity sector witnessed a slowdown. On a sequential basis, manufacturing growth was muted as consumer durables as well as capital goods witnessed a contraction.
But the big positive was inflation, where a good pulses production and low vegetable prices meant that the food index witnessed a contraction. Even fuel inflation was lower on a sequential basis. This is the lowest level of retail inflation since the revised index based on 2012 prices was released.
DK Joshi, chief economist at ratings agency Crisil, said with forecast of a good monsoon, food inflation is expected to stay low during the current financial year, helping keep a tab on overall inflation. Soumya Kanti Ghosh, group chief economic adviser at SBI, said, “With real interest rate at 15-year high in 2016-17 and inflation near 2% level now, RBI cannot avert a rate cut in the August 2017 monetary policy meeting. The expectation of a prominent rate cut would become more pronounced if inflation continues to remain benign for a longer time.” The RBI has been under pressure from the government to pare interest rates as fresh investments remain slow, partly due to a pile of bad debt. In addition, the monetary policy committee, which now decides on rate cuts, has got its inflation calculations wrong.
