The acceleration in industrial growth for the month of July 2006 may encourage the RBI to go in for a rate hike at its next policy meeting scheduled for end October. If the growth momentum is sustained in August as well, rate hikes are very likely even if the US Fed decides to extend its rate hike pause later this month.

Wholesale price inflation for the latest reporting week is above 5 per cent per annum. The decline in crude oil prices would not have much impact on domestic price levels as it is unlikely that the government would go in for a cut in retail fuel prices. The government may contemplate such a move if crude oil prices remain at around $60 per barrel level for a sufficiently longer period.

Index of Industrial Production (IIP) for the month of July 2006 has increased 12.4 per cent from the same month of previous year, according to quick estimates released by the Central Statistical Organisation. Industrial growth for the month was much better than 9.6 per cent reported for June 2006.

This is the best monthly industrial growth reported for more than a decade. The sharp acceleration in growth was mostly on account of low base effect as growth for July 2005 was only 4.7 per cent.

Strong growth for July has pushed up industrial growth for the first 4 months of the current financial year to 10.6 per cent, 170 basis points higher than 8.9 per cent achieved for the same period of previous year. Industrial growth for the first quarter of the current year was 10.1 per cent.

Manufacturing was once again the star performer, growing at a rate of 13.3 per cent. Manufacturing growth was at a much lower 6 per cent during July 2005 and 10.5 per cent June 2006. The sector has clocked a growth of 11.8 per cent for the first 4 months of current year as against 9.9 per cent for the same period of previous year.

Electricity generation saw a substantial jump in growth to 8.6 per cent for the month as compared to a decline on 0.9 per cent for July 2005 and 4.5 per cent during June 2006.

Mining output growth was at 6 per cent for July 2006 as compared to a decline of 1.9 per cent for the same month of previous year.

Output of capital goods accelerated at 15.4 per cent during July 2006 as compared to 14.9 per cent during the same month of previous year. Basic goods output went up by 10 per cent from 3.4 per cent growth in July 2005. Production growth of intermediate goods improved to 7.9 per cent from 3.2 per cent for the previous year month.

Growth in consumer goods output picked up after a dull performance in June 2006. Consumer goods production increased 17.9 per cent from 4.5 per cent growth reported in July 2005. Consume durables output growth was at 17.5 per cent for the month while consumer non-durables production increased 18 per cent.

Output of automobiles and other transport equipment maintained growth rate of above 20 per cent for July 2006 as well. Output of this sector has recorded a 22.9 per cent growth for the month. Other machinery and equipment output growth was at 12.4 per cent.

Apparel and garment output expanded at a much better rate of 17.3 per cent, but growth in cotton textiles continue to be poor at 1.5 per cent. Basic metal and alloy industries expanded at 19.5 per cent for the second successive month while production of non-metallic metals increased 13.4 per cent. Other manufacturing industries recorded a growth of 21.3 per cent for the month.