IIP growth slips to 7.1% in February; retail inflation eases to five-month low in March

Maintaining high growth for the fourth month in a row, industrial production grew at 7.1 percent in February, from a year-ago, mainly driven by a robust performance of the manufacturing sector coupled with a higher off-take of capital goods and consumer durables. However, the February IIP print was a tad lower than the 7.4 percent recorded in January 2018. Meanwhile, retail inflation slowed to 4.28 percent in March, the third consecutive month of decline, mainly on account of easing food prices including vegetables, government data showed on Thursday. Factory output India’s factory output measured in terms of the Index of Industrial Production (IIP) had grown by 1.2 percent in February 2017, as per data released by the Central Statistics Office (CSO) on Thursday. [caption id=“attachment_2648484” align=“alignleft” width=“380”] Representational image. Reuters[/caption] The IIP recorded a growth of 8.54 percent in November, 7.1 percent in December and 7.4 percent in January, as per the revised data. During April-February, IIP growth has slowed to 4.3 percent from 4.7 percent in the same period last fiscal. The manufacturing sector, which constitutes over 77 percent of the index, grew at 8.7 percent in February as compared to the almost flat growth of 0.7 percent in the same month a year ago. Similarly, capital goods output rose by a robust 20 percent in the month under review as against a contraction of 2.4 percent earlier. Consumer durables too grew at 7.9 percent as against a contraction of 4.6 percent in February 2017. Electricity generation also grew by 4.5 per cent compared to 1.2 percent. However, mining output declined by 0.3 percent against a growth 4.6 percent earlier. As per use-based classification, the growth rates in February 2018 over February 2017 are 3.7 percent in primary goods, 3.3 percent in intermediate goods and 12.6 percent in infrastructure/construction goods. The consumer non-durables sector recorded a growth of 7.4 percent. In terms of industries, 15 out of the 23 industry groups in the manufacturing sector have shown positive growth during February 2018. Inflation The inflation based on the Consumer Price Index (CPI), a key data factored in by the Reserve Bank of  India (RBI) to arrive at interest rate, was 4.44 percent in February. However, the March 2018 inflation is higher than 3.89 percent recorded in the same month of the previous year. As per data released by the Central Statistics Office (CSO), inflation in the vegetables segment cooled to 11.7 percent in March from 17.57 percent in the previous month. The rate of price rise in protein rich items like eggs, milk and other products too moderated in March as against the previous month. However, inflation in the fruits basket was higher. Overall, inflation in the food basket was 2.81 percent, lower than 3.26 percent in February. The CSO data further revealed that inflation in the fuel and light segment also came in lower at 5.73 percent on a month-on-month basis. Expert’s take Aditi Nayar, Principal Economist, ICRA, in a statement, said: “While IIP growth charted an expected dip in February 2018 relative to the previous month, the pace of expansion was modestly higher than anticipated. With IIP growth exceeding 7 percent for January - February 2018, the outlook for the GVA growth for Q4 FY2018 has become brighter… “The robust 20% expansion in capital goods output in February 2018 was primarily driven by separators, trucks, ship building and commercial vehicles, which together account for less than 20% of the capital goods sub-index. While the growth of capital goods output has surged in the recent months, the YTD growth remains moderate at 5.3%. In our view, recovery in investment activity remains limited to certain sectors… “Mining output recorded a YoY contraction after a gap of three months, driven by crude oil and natural gas, weighing upon the overall industrial performance in February 2018. Moreover, the pace of growth of electricity generation eased sharply to 4.5% in February 2018 from 7.6% in January 2018. “In our view, the pickup in the growth of Coal India Limited’s (CIL) output and electricity generation, would be offset by an easing in the pace of manufacturing growth, led by an unfavourable base effect as well as the trend displayed by auto production. Accordingly, industrial growth may dip below 7.0% in March 2018 after a gap of four months.”