Inflation Cools But Still Above RBI Target, Industrial Output Grows to 7.1%

New Delhi: Signalling continuation of the growth momentum, industrial output expanded by 7.1 per cent in December on robust performance by manufacturing and capital goods, Central Statistics Office (CSO) showed on Monday.

Retail inflation, on the other hand, eased marginally in January to 5.07 per cent - after touching a 17-month high of 5.21 per cent in December - as food price rise showed some moderation. The rate of inflation however, is still above the RBI's mid-term target of 4 per cent.

"Focus on #MakeInIndia, showing consistent results. Manufacturing recoded a robust growth of 8.4 percent in Dec'17 over Dec'16," Commerce Minister Suresh Prabhu said in a tweet.

The Index of Industrial Production (IIP) showed that the growth of 7.1 per cent in December was mainly on account of uptick in the manufacturing sector which constitutes 77.63 per cent of the index. It grew by 8.4 per cent in December last year as compared to just 0.6 per cent in December 2016.

The capital goods, a barometer of investments, showed a sharp increase in output by 16.4 per cent in December, 2017 as against a decline of 6.2 per cent year ago.

IIP had grown at 2.4 per cent in December 2016. The growth for November, 2017 was revised upwards to 8.8 per cent from provisional estimates of 8.4 per cent released last month.

Based on the Consumer Price Index (CPI), retail inflation in January was down marginally to 5.07 per cent in January 2017, compared to 3.17 per cent in the year-ago month.

Consumer food basket inflation eased a little to 4.7 per cent in January, from 4.96 per cent in December.

Inflation in the vegetable segment slowed to 26.97 per cent as against 29.13 in December. Prices of fruits too rose at a lower pace of 6.24 per cent last month, as against 6.63 per cent recorded in the preceding month.

For the fuel and light segment, inflation was 7.73 per cent last month compared to 7.90 per cent in December.

Commenting on the IIP data, industry body Assocham said that domestic market will be the driving force in the coming months as growing Indian economy will provide steady flow of new businesses.

"However, risks to the Indian economy continue to prevail in the forms of continued uncertainties in the global environment due to geo-political situations, including rising global protectionism could further delay a meaningful recovery of external demand," said Assocham president Sandeep Jajodia.

Principal Economist with ICRA Aditi Nayar opined that it remains "somewhat premature" to attribute the recent double- digit growth in capital goods to a pickup in investment activity.

On CPI data, Ind-Ra said the inflation and inflationary outlook suggest that on policy rate RBI is likely to remain in a pause mode at least during the first half of 2018.