Retail Inflation touches 5-month high, IIP slips.

The economy showed worrying signs as industrial growth slumped in May and retail inflation picked up in June, presenting a difficult choice on the policy rate front for the monetary policy committee(MPC).

The retail inflation based on Consumer Price Index (CPI) stood at 4.87 per cent in May. It was 1.46 per cent in June 2017. The earlier high was in January this year at 5.07 per cent.

Factory output growth measured in terms of the Index of Industrial Production (IIP) was revised down to 4.8 per cent in April from previous estimates of 4.9 per cent.

Why is this important?

The Uptick in core CPI Inflation and Increase in MSP suggest there could be repo rate hike in August. If rate hike take pause in August, there will be rate hike of 25-50bps by the end of this calendar year. Th manufacturing growth which slumped to a low of 2.8 per cent in May from 5.3 per cent in the previous month, which is also a concern. Overall GDP is expected to be high in the first quarter of 2018-19 due to low base of 5.6 per cent a year ago, but subdued IIP growth may put a dampener.

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