IIP growth rises 4.3% in August

In the first signs of the economy turning corner post-GST hiccups, the country’s industrial production growth rose to 4.3% in August while retail inflation softened in September raising hopes of an interest rate cut by the Reserve Bank of India sooner than later.

Powered by a 5.4% growth in capital goods sector, the latest factory output data indicated that investment and production activities were gradually returning to the economy. The sector had contracted -0.1% in July.

Manufacturing too staged a come back with a 3.1% growth in August. The rebound in the manufacturing sector is a sure sign of consumer demand revival and companies having started restocking and building upon inventories after GST related halt in activities. Manufacturing expanded only 0.1% in July.

But the surprise growth came from the consumer non-durable sector which indicates rural economy may have started to pick up. Consumer non-durables rose 6.9% in August. Analysts said they are witnessing such kind of growth in non-durables after a long time.

The last time the country saw as high an industrial production growth was in November of 2016, just before demonetisation. However, it was too early to call it a trend. Industrial production data is subject to volatility.

Inflation Eases

On consumer inflation front, there was a mild cheer with the September data softening to 3.28% beating street estimates. The CPI inflations eased on the back of cheaper food and vegetable prices. Since vegetable prices had started stoking up again in October, the analysts saw a spike in inflation numbers in the coming months.

The house rent allowance revision by the 7th Pay Commission is also expected to keep the consumer inflation on a higher trajectory till the end of this year.

Analysts saw a rate cut coming on the back of a favourable inflation data but the RBI has said it will watch the future inflation trajectory closely before revising rates downward. Moreover, the RBI will also be watching India’s second quarter (July-Sept) GDP growth numbers, which are expected a little before its policy revision on December 6, closely.