Inflation at a 15-month high, factory output at a 3-month low; so no hope of a rate cut anytime soon

Heard the adage 'bad news comes in threes'? Well, it's true, at least so far as the latest economic data is concerned. As per data recently released by the government, consumer prices shot up in November to hit a 15-month high of nearly 4.9% while, for a second month in a row, factory output has slowed down-from 4.1 percent in September to 2.2 per cent in October. And, given the above, most industry insiders expect no rate cuts by the RBI in the February review of the monetary policy. In fact, there's talk of tightening policy in 2018.

Retail inflation
According to a report by rating agency Care, retail inflation as measured by the consumer price index, has risen by nearly 3.5% since June this year. Yesterday's statement by the Central Statistics Office (CSO) explains that this acceleration is due to surging food and fuel costs.

Food and Beverages witnessed inflation of 4.4 per cent (year-on-year) compared with 2.6 per cent the previous year, the highest recorded level of inflation since Aug 2016. Fruits recorded an inflation of 6.2 per cent as compared with 4.6 per cent during the previous year while inflation in vegetables was recorded at 22.5 per cent, hitting a 47-month high. "There was a sharp increase in vegetable prices last month primarily due to heavy rains in producer states that led to crop damages. This was exacerbated by lower crop and vegetable stocks with traders as they turned cautious with the implementation of GST," added the Care report.

Meanwhile, inflation in fuel and light rose to 7.9 per cent, which is considerably higher than the 2.8 per cent recorded in October 2016. This can be attributed partly to the rise in international oil prices particularly on efforts by OPEC to rebalance global supply and the globally rising demand.

Like fuel inflation, housing inflation too is at its highest level since October 2013-it is up 7.4 per cent in November 2017 compared to the previous year, reflecting the impact of the hike in the house rent allowances of the central government staff under the 7th Pay Commission.

Last week the RBI had said that it expected retail inflation to be in the 4.3-4.7 per cent range during the second half of the current fiscal, up from 4.2-4.6 per cent seen in the October policy review. But now, given the above figures, some analysts have upped their March-end projection to close to 5%, according to the daily.

Factory output
Despite it being a festive month, and despite post-GST restocking by the trade which could have boosted production, industrial output growth slowed to a three-month low. Consumer durables output in the month was down 6.9 per cent y-o-y, as per the of Index of Industrial Production (IIP) data released by the CSO.

"The general index for the month of October 2017 stands at 123, which is 2.2 per cent higher as compared to the level in the month of October 2016," said a statement released by the Ministry of Statistics & Programme Implementation, which added that the cumulative growth for April-October 2017 was 2.5 per cent. The corresponding figure in the previous year was 5.5 per cent.

As per the IIP data, the slowdown on was mainly on account of deceleration in manufacturing and mining outputs. On a year-on-year basis, the manufacturing sector expanded by 2.5 per cent, whereas mining output was a mere 0.2 per cent and the sub-index of electricity generation expanded by 3.2 per cent. In the infrastructure sector, construction has stood out posting a growth of 5.2 per cent compared with 0.4 per cent in the previous month.

It's not all gloom and doom, of course. In terms of industries, 10 out of the 23 industry groups in the manufacturing sector have shown positive growth during the month of October 2017 as compared to the corresponding month of the previous year. The industry group 'Manufacture of pharmaceuticals, medicinal chemical and botanical products' has shown the highest positive growth of 23 per cent followed by 12.8 per cent in 'Manufacture of motor vehicles, trailers and semi-trailers' and 9.7 per cent in 'Manufacture of computer, electronic and optical products'.

But, overall, the latest data is pretty depressing, backing the RBI's recent views that "moderation in inflation excluding food and fuel observed in Q1 of 2017-18 has, by and large, reversed. There is a risk that this upward trajectory may continue in the near term."