ECONOMY IN DOLDRUMS

INDUSTRIAL PRODUCTION SLIPS...RETAIL INFLATION RISES

In a double whammy for the government, retail inflation soared to a nine-month high of 11.24 per cent and factory output shrank 1.8 per cent, developments that may prompt the Reserve Bank to further increase a key interest rate next week. Official data released today showed inflation as measured by the consumer price index (CPI) crossing the 11 per cent mark in November on account of costlier vegetables and fruits such as onions and tomatoes. The Index of Industrial Production (IIP) contracted in October after three months, mainly due to poor performances in manufacturing, mining and consumer durables. Commenting on inflation, RBI Governor Raghuram Rajan said, "I think monetary policy also has a role to play in trying to balance demand and supply. Again, as I said, we are aware of the weak economy but we also have to take into account inflationary pressure." The RBI, scheduled to review the monetary policy on December 18, hiked the key lending rate by 0.25 per cent in each of it previous two policy reviews to contain inflation. Before the data was released, the rupee closed 58 paise lower at 61.83 against the dollar while the 30-share benchmark Sensex plunged 246 points to close below the 21,000 level. Persistently high inflation was touted as one of the main reasons for the defeat of the Congress party in the recently concluded assembly elections in the key states of Delhi, Madhya Pradesh, Chhattisgarh and Rajasthan. In November, vegetable prices rose 61.6 per cent from a year earlier, compared with a 45.67 per cent increase in October. Fruits were 15 per cent costlier. The CPI data showed pulses were dearer by 1.2 per cent, cereal prices by 12.07 per cent and milk products by 9.06 per cent last month.
Prices of protein-rich items such as eggs, meat and fish rose 11.96 per cent. Inflation in the food and beverages segment was 14.72 per cent in November compared with 12.56 per cent in the previous month. Inflation remained in double digits for several months until March and declined to 9.39 per cent in April before rising to 10.17 per cent in October. Data on inflation based on the wholesale price index is scheduled to be released on Monday. Industrial output for April-October was unchanged compared with 1.2 per cent growth in the same period of 2012-13. The manufacturing sector, which constitutes over 75 per cent of the IIP, declined 2 per cent in October as against growth of 9.9 per cent a year earlier. During April-October, the sector's output contracted 0.3 per cent compared with growth of 1.1 per cent in same period last year. The mining sector, with a weight of about 14 per cent in the index, contracted 3.5 per cent in October as against a dip of 0.2 per cent a year earlier. In April-October, mining production shrank 2.7 per cent as against a contraction of 1 per cent. Power generation growth was 1.3 per cent in October compared with a 5.5 per cent expansion a year ago. Power generation increased 5.3 per cent in April-October compared with 4.7 per cent in the same period last year. Ten of the 22 industry groups in the manufacturing sector showed negative growth in October.