The recent economic data suggests a worsening of the macro-economic environment.
Industrial activity slumped to a seven-month low, while the retail inflation rate rose to a five-month high and the trade deficit widened to its highest in more than five years.
The consumer price index (CPI) rate rose to 5 per cent in June, up from 4.87 per cent in May as seen in Chart 1. Adding to worries, the core inflation rate firmed up to 6.4 per cent, while the food inflation rate decelerated to 2.9 per cent (Chart 2). The latter, though, is expected to rise in the coming months as the effects of the hikes in minimum support prices (MSPs) work their way through the system.
On the other hand, industrial activity slowed to 3.2 per cent (Chart 3) in May, from 4.8 per cent in April, driven by sluggish growth in the manufacturing sector (Chart 4). The capital goods segment, which connotes investment activity in the economy, grew by 7.6 per cent in May, down from 11.9 per cent in the previous month.
On the trade front, as shown in Chart 5, export growth slowed to 17.6 per cent in June, from 20.2 per cent in May, with non-oil non-gems and jewellery exports growing at 15.13 per cent. On the other hand, imports grew by 21.3 per cent in June, pushed by higher oil imports, which grew by a staggering 56.6 per cent (Chart 6). Non-oil non-gold imports grew by 12.5 per cent. As a consequence, the trade deficit widened to a 61-month high of $16.61 billion in June, up from $14.62 billion in May (Chart 7).
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