IIP growth dips 2.1%; retail inflation shoots up to 6.07%

New Delhi: Raising concerns about cost of credit and pick up in economic activity, retail inflation soared to 23-month high of 6.07 percent in July on higher food prices, while factory output grew at a subdued rate of 2.1 percent in June.

The data, released by the government today, may lead to stronger calls by the industry for an interest rate cut to lower cost of capital and boost economic demand, though spike in inflation may lower the chances of any such move as the rate of price rise has exceeded RBI's comfort zone.

Industrial production data -- better than a growth rate of 1.1 percent in previous month but sharply below 4.2 percent a year ago -- showed a poor performance of manufacturing sector as also a heavy contraction in capital goods output.

The retail inflation measured by Consumer Price Index, continued to move northwards on account of rising food prices as demand for sugar, oil & fats and spices rose ahead of the festival season.

"Revival of investment demand remains an area of concern as reflected in the steep decline of capital goods sector in the first quarter," Ficci Secretary General A Didar Singh said.

"Initiatives taken by the Government to address the structural issues that impact manufacturing sector growth need to continue and stepped up to ensure that growth in manufacturing accelerate," he added.

According to the data, factory output, measured in terms of the Index of Industrial Production (IIP) grew at 4.2 percent in June, 2015.

On cumulative basis, the factory output in the April-June quarter grew by 0.6 percent compared to 3.3 percent growth in the year-ago period.

The manufacturing sector that constitutes over 75 percent of the index saw a meager growth of 0.9 percent in June compared to 5.2 percent a year ago.

For the April-June quarter, this sector's output showed contraction by 0.7 percent, as against a growth of 3.7 percent a year ago.

The capital goods output registered a steep decline of 16.5 percent in June over a contraction of 2 percent in last year. In April-June, the production of these goods, which are considered as barometer for investment, declined by 18 percent compared to a growth of 2 percent in year ago period.

Growth in output of consumer durables decelerated to 5.6 percent in June compared to 16.1 percent a year ago. The consumer non-durable goods also recorded low growth of 1 percent in June compared to 2.3 percent a year ago.

Overall, consumer goods production recorded a growth 2.8 percent in June compared to 7.2 percent a year ago.

Power generation however recorded an impressive growth of 8.3 percent in June compared to 1.2 percent in the same month a year ago.

The mining sector recorded a growth of 4.7 percent in June year as against a contraction of 0.4 percent a year ago.

In terms of industries, 18 out of 22 industry groups in the manufacturing sector have shown positive growth during the month of June.

As per Use-based classification, the growth rates in June 2016 over June 2015 are 5.9 percent in Basic goods, (-)16.5 percent in Capital goods and 6.1 percent in Intermediate goods.

The data further showed that the retail inflation, based on Consumer Price Index (CPI) was 5.77 percent in June. In July 2015, it was at 3.69 percent. Inflation was highest since September 2014, when it was at 6.46 percent.

Food inflation during the month rose to 8.35 percent, up from 7.79 percent in June.

Government has put inflation targeting at 4 percent with a range of plus/minus 2 percent for next five years under the new monetary policy framework agreement with the Reserve Bank.

In July, sugar and confectionery inflation rose to 21.91 percent (against 16.79 percent in June); oil and fats to 4.96 percent and spices to 9.04 percent.

There was an uptick in prices of cereals and products with inflation standing at 3.88 percent, while that for eggs shot up to 9.34 percent (against 5.51 percent).

Milk and products, also used as key ingredient for making eatables during festival, saw inflation rising to 4.13 percent in July (from 3.43 percent).

Starting August, various festivals are celebrated in different parts of the country leading to higher sales of commodities ranging from sweets, fruits and food items.

Inflation in fruits, vegetables and pulses was 3.53 percent, 14.06 percent and 27.53 percent respectively.

CPI inflation for urban sector was 5.39 percent in July, while that for rural segment it was 6.66 percent.