New Delhi, Sept. 12: Consumer price inflation rose more than expected to a five-month high in August, fuelled by strong gains in the prices of food items, while industrial output grew only 1.2 per cent in July against 4.5 per cent a year ago.
Higher inflation and lower industry growth is expected to place the Reserve Bank of India in a dilemma next month - lower industry growth calls for lower rates even as higher inflation dampens the chances of a cut in policy rates.
Industry growth bore the brunt of a dismal show by the manufacturing sector - especially that of capital goods as the impact of a new nation-wide tax continued to weigh on factories.
The consumer price index (CPI) rose 3.36 per cent in August from a year earlier, data released by the ministry of statistics on Tuesday showed.
Last month, the RBI cut its main policy rate by 25 basis points to 6 per cent, the lowest since 2010, while keeping its policy stance at "neutral".
Analysts said a rise in inflation for two straight months had reduced the chances of another rate cut by the RBI, which has a central inflation target of 4 per cent.
"We are of the opinion that the RBI will not deliver any rate cut this calendar year," said Hitesh Jain, an analyst at IIFL Wealth Management.
The monetary policy committee (MPC) of the central bank had warned prices could start accelerating soon, reflecting caution, despite pressure to cut more aggressively after consumer inflation remained below its central target since October.
Inflation had eased to 1.46 per cent in June - its slowest pace since India started releasing retail inflation figures in January 2012, based on combined data for rural and urban consumers.
"While the uptick in CPI inflation in August 2017 was in line with our expectation, the broad-based rise in core CPI inflation is a cause for some concern," said Aditi Nayar, principal economist, Icra.
The index of industrial production (IIP) grew 1.2 per cent in July from a contraction of 0.2 per cent a month ago and a growth of 4.5 per cent a year ago.
Manufacturing, which constitutes over 77 per cent of the index, showed a growth of 0.1 per cent in July compared with a growth of 5.3 per cent in the same month last year.
Mining and electricity, however, grew a robust 4.8 per cent and 6.5 per cent, respectively, in July.
In terms of industries, only eight of the 23 industry groups in the manufacturing sector have shown positive growth in July 2017.
Capital goods output, which is considered the barometer of investment, declined 1 per cent from a growth of 8.8 per cent a year ago.
Last month, government data showed the economy to grow 5.7 per cent in the April-June quarter of 2017 - its slowest in five years. This was on top of India's inflation-adjusted GDP, which had grown 6.1 per cent in January-March 2017, a lower-than-expected figure mainly on account of slower spending and investment because of a surprise demonetisation of 86 per cent of its currency in November 2016.
Said Sanjaya Baru, secretary- general, Ficci, "The slowdown in manufacturing and particularly in the capital goods sector reflects a depressing investment outlook.
"As the slowdown is more pervasive this time in terms of number of sectors, it calls for an urgent need to revive investments through reforms, especially at the state level and also by bringing down interest rates."