July IIP rises marginally by 1.2 percent

Consumer price index based inflation continued to rise for the second consecutive month by 3.36% from 2.36% a month ago as food inflation turned positive after three months of contraction

Macroeconomic data released by the government on Tuesday showed that the Index of Industrial Production (IIP) grew by 1.2 per cent in July as against a contraction of 0.1 per cent in June.

The second volume of the Economic Survey 2016-17 presented on Friday in Parliament took a contrarian view and maintained that India is undergoing a structural shift toward low inflation, mostly due to changing dynamics in the oil market, which has capped upside risks. The output of capital goods (infrastructure investments) fell one per cent in July, against a 8.8 per cent growth a year ago.

The factory output had expanded by 4.5 per cent during July of 2016. According to consumer price index (CPI) data, retail inflation stood at 2.36 per cent in July.

Manufacturing, which plunged into negative territory in June (-0.5 per cent), remained flattish in July, exhibiting that factories were yet to stabilise production after taking a hit from pre-GST de-stocking. "Vegetable inflation turned positive after 11 consecutive months of deflation in August 2017".

On the other hand Nirmal Bang estimated IIP to be at 0.7% YoY for July 2017, up from -0.1% YoY in the previous month as it sees the sluggishness in industry on account of implementation of GST to continue in 2QFY18.

Growth of the manufacturing sector, which makes up 77.6 per cent of the index, decelerated sharply to 0.1 per cent in July compared to 5.3 per cent in the same period of 2016.

Daily consumables like fruits and vegetables turned costlier during the month with inflation print coming at 5.29 per cent and 6.16 per cent, respectively as against 2.83 per cent and (-) 3.57 per cent in July, according to the data released by the Central Statistics Office (CSO). The cumulative growth for the period April-July 2017 over the corresponding period of the previous year stands at 1.7 percent.

Consumer non-durables have recorded a growth of 3.4 per cent.

Sunil Sinha, principal economist at India Ratings & Research, said: "Major reasons for increased inflation are: food inflation increasing to five months' high (after three months of consecutive deflation), increase in housing inflation by 60 basis points over July 2017, increase in footwear inflation and increase in miscellaneous goods inflation".

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