India's Industrial growth contracts by 2.4%, inflation falls to 5.05%

New Delhi: India's annual retail inflation eased by 100 basis points to 5.05 percent in August, but factory output again dipped to a negative growth of (-)2.4 percent in July from an expansion of 1.95 per cent in the moth before, official data showed on Monday.

The fall in retail inflation, as per data released by the Central Statistics Office (CSO), was thanks to a rather sharp drop in the annual food inflation -- from 8.35 percent in July to 5.91 percent in August.

As far as the factory output is concerned, the drag was due to a negative growth of (-)3.4 percent in the manufacturing sub-index, which enjoys the maximum weight in the main index, even as the growth rates in mining and electricity indices were also modest.

In May the factory output was up 1.1 percent, while in April it took a hit of (-)1.4 percent. In July last year, there was a growth of 4.3 percent. Cumulatively, the growth during the first four months of this fiscal is at (-)0.2 percent.

This being the last set of data release on retail inflation and industrial production, ahead of the next bi-monthly monetary policy update due on October 4, expectations have risen sharply on possible interest rate cut.

This, also because the annual retail inflation that was above the upper tolerance level of six percent in July, has since come down by 100 basis points, even though it is still above the base rate of four per cent.

The government target is four percent plus or minus two percentage points for the next five years.