Inflation down, IIP up

Retail inflation softened sharply in July , while industrial output growth rose to a four-month high in June, bringing cheer for the economy and policymakers and raising prospects for a reduction in interest rates. Retail inflation slowed to a record low of 3.8% year-on-year in July, significantly lower than 5.4% in the previous month, on the back of slowing food prices and a favourable base effect.
Industrial output growth rose 3.8% in June, faster than downwardly revised 2.5% expansion in May . The rebound was led by a turnaround in the manufacturing sector, which rose 4.6% in June compared to 2.9% growth in the year earlier period. The turnaround in consumer goods and consumer durables also augured well but the capital goods sector contracted after seven months, pointing to weakness in investment conditions.
FM Arun Jaitley said the data showed the economy was on the growth path. The sharp moderation in retail inflation is expected to trigger calls for a cut in interest rates. RBI left rates unchanged in its policy review earlier this month. The latest retail inflation data is much below the comfort level of RBI.Price of pulses remained a worry as they shot up nearly 23% year-on-year in July , but food and beverages inflation remained benign at 2.9%. Responding to 39% increase in indirect tax receipts, chief economic adviser Arvind Subramanian said it indicated that the underlying momentum in the economy continues to improve across all sectors.
India Inc stepped up calls for cutting interest rates, citing weak capital goods output and the sharp decline in retail inflation.

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