India factory output likely slowed in July but inflation may have eased in Aug

Indian factory output probably slowed further in July as core industries like mining and cement manufacturing were hampered by the monsoon rains, but more encouragingly inflation was seen easing in August, a Reuters poll found.

Industrial production was seen growing 1.8 percent from a year earlier in July, slower than June’s 3.4 percent increase, according to the median consensus in a poll of 31 economists.

“This is the time when mining remains weak because of monsoons, so it will not deliver a good number. Manufacturing is also expected to lag,” said Upasna Bhardwaj, economist at ING Vysya Bank.

Data released on Sept. 1 showed infrastructure output growth, which accounts for almost two-fifths of total factory activity, slowed to a three-month low of 2.7 percent in July, dragged down by falling natural gas, steel and fertiliser production.

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The July industrial output numbers offer the first glimpse of economic growth in the third quarter. Between April-June, the Indian economy grew 5.7 percent, the fastest in 2-1/2 years.

That provided some good news for Prime Minister Narendra Modi, whose government is expected to unleash major reforms after sweeping to power in a landslide election victory in May.

While the monsoon rains likely affected production they also helped tame price rises, notably for food items, according to economists in the poll.

India’s consumer price inflation, closely tracked by the Reserve Bank of India, likely edged down to 7.80 percent in August from July’s 7.96 percent.

Wholesale price inflation is also expected to have decelerated to 4.50 percent in August from July’s 5.19 percent after a drop in crude oil prices and a rising rupee.

If confirmed, that would be the lowest reading in nearly five years.

“Commodity prices and crude oil have remained quite benign which should result in some kind of easing in wholesale prices,” Bhardwaj said.

Reserve Bank of India Governor Raghuram Rajan has repeatedly stressed his determination to curb inflation in Asia’s third-largest economy.

Reuters