Factory Growth, Inflation Likely To Trend Higher: Report

India's industrial growth and inflation may trend up as key metrics such as Index of Industrial Production (IIP), Consumer Price Index (CPI) and Wholesale Price Index (WPI) are expected to come in higher, driven by a waning Goods and Services Tax (GST) impact and higher commodity rates, says a Morgan Stanley report.

According to the global financial services major, August IIP may improve as GST-related impact would wane. Moreover, export growth is expected to stay strong in September.

Morgan Stanley expects CPI inflation to rise further to 3.8 per cent, inching closer to the Reserve Bank of India’s (RBI) inflation target of 4 per cent, while WPI inflation may inch up to 3.4 per cent in September from 3.2 per cent in August, largely driven by higher oil prices.

According to official data, India's retail inflation had swelled to a 5-month high of 3.36 per cent in August on costlier vegetables and fruits.

Following the uptrend in inflation, Morgan Stanley said "rising inflation trajectory will mean that the central bank will keep rates on hold".

RBI in its policy review meet on 4 October, kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 per cent for the current fiscal.

Regarding IIP, the report said the index is expected to rise to 1.7 per cent in August, supported by a favourable base. Besides, indicators like core industries' production, passenger vehicle production and steel demand remained supportive through August, suggesting that IIP improved during the month.

"Looking ahead, we do expect that the economy should now have a clear runway for growth with both consumption and exports picking up," the report said. (PTI)