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India’s retail inflation hits seven-month low of 3.61%, food inflation lowest since May 2023, industrial output quickens
- Meanwhile, industrial output growth picked up in January, after slowing down in the previous month, due to a rise in manufacturing and mining activities.
New Delhi: India's retail inflation eased to a seven-month low in February, driven by a slower increase in food prices, according to provisional government data released on Wednesday, fuelling hopes of an interest rate cut.
Retail inflation, based on the Consumer Price Index (CPI), was at 3.61% in February, down from 4.26% in January.
Retail inflation was 5.22% in December, 5.48% in November and 5.09% in the year-ago period, the ministry of statistics & programme implementation (MoSPI) data showed.
Interestingly, food inflation eased to 3.75% in February, after reporting a 5.97% increase in January, a figure revised in the latest MoSPI update from the 6.02% rise announced last month.
Meanwhile, industrial output growth picked up in January, after slowing down in the previous month, due to a rise in manufacturing and mining activities.
The Index of Industrial Production (IIP) rew at 5% in January, up from 3.2% in the previous month, according to the latest estimates released by MoSPI.
India's industrial output surged past expectations in January, driven by robust growth in manufacturing and mining.
A Mint poll of 25 economists projected retail inflation at a five-month low of 3.9% in February, driven by falling food prices.
This marks the fourth straight month of easing inflation, strengthening the case for another RBI rate cut in April.
After reporting a 6.4% growth during the December quarter, the slowest since Q4FY23, barring one quarter, economists widely expect the central bank to opt for a rate cut next month.
"The inflation trajectory is turning more benign than earlier expectations thereby creating further room for sharper monetary easing. We expect a 25 bps rate cut each in April and June policy along with a shift in the stance to accommodative," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
"Beyond June, we continue to monitor the downside risks to growth to decipher room for additional rate easing," she added.
The RBI aims to keep CPI inflation at 4%, within a ±2% range.
Food prices have remained elevated for some time, staying above 7% from November 2023 to June 2024, primarily due to the previous year's uneven and below-normal monsoon rains.
While overall food inflation has been slowing, the prices of key food items like fruit have remained high.
In February, the prices of cereals, meat, eggs, vegetables, milk and pulses rose at a slower pace than the previous month, while prices of fruit, oil and fats saw an increase.
Overall, the inflation for food and beverages rose by 3.84% in February, down from 5.68% in January and 7.69% in December.
The price of clothing and footwear rose by 2.68% yearly, both in January and February.
Economists note that while agricultural production is projected to reach a record high in 2024-25, according to the second advance estimate, favourable agricultural prospects, fresh Rabi harvest arrivals, and healthy reservoir levels are positive signs for food inflation.
"Food inflation is likely to remain benign in the coming months, however, we need to be cautious of any weather-related disruptions," said Rajani Sinha, chief economist, CareEdge.
"Going ahead, we project the CPI inflation to stay around the 4% levels supported by comfortable core inflation and moderating food inflation. The trajectory of global commodity prices remains monitorable given the overhang of uncertain trade policies and geopolitical tensions," Sinha added.
Interestingly, 12 of the 22 states reported inflation below the 3.6%-mark in February – Andhra Pradesh, Delhi, Gujarat, Himachal Pradesh, Jharkhand, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Telangana, Uttar Pradesh and West Bengal.
Last month, the RBI's Monetary Policy Committee (MPC) reset its repo rate to 6.25%, the first such easing move since the 2020 covid outbreak.
After the decision, RBI Governor Sanjay Malhotra said that the MPC found a less restrictive monetary policy more suitable for the current economic conditions while maintaining a neutral stance.
Thus, the RBI's focus may shift from curbing inflation—forecast at 4.8% for 2024-25 and 4.2% in 2025-26—to boosting credit and supporting an economy set to slow to 6.4% in 2024-25, with only a modest recovery expected next year.
Also read | Growth, inflation, financial stability: It’s a season of major trade-offs for India’s policymakers
"Easing food prices, coupled with lower global crude oil prices, have provided a supportive backdrop for inflation to align more closely with the RBI’s 4% target," said Sujan Hajra, chief economist and executive director, Anand Rathi Group.
"Against this backdrop, the RBI, which recently cut the repo rate by 25 basis points and implemented liquidity measures to address the system’s deficit, is likely to maintain its easing cycle," Hajra added.
India’s industrial output surged past expectations in January, driven by strong manufacturing and mining activity, provisional data released by MoSPI on Wednesday showed.
Industrial production rose 5% year-on-year, exceeding economists' forecast of 3.5% in a Reuters poll and up from 3.5% in December, revised from 3.2% in the latest release.
The last time industrial output grew at this pace was in November.
Manufacturing expanded 5.5% in January, while mining rose 4.4% and electricity generation increased 2.4%.
In December, these sectors had grown by 3.4%, 2.7%, and 6.2%, respectively.
"The major push has come from non-metallic minerals, base metals, electric equipment, electronics to an extent and other transport equipment. Eight of the 23 major segments showed higher than 5% growth," said Madan Sabnavis, chief economist at the Bank of Baroda.
"In terms of use-based industries, capital goods showed an increase of 7.8% indicating a revival of private investment," Sabnavis added.
During the April-January (2024-25) period, industrial output increased by 4.2%, compared to 6% a year ago.
Consumer durables output, including vehicles and household appliances, grew 7.2% in January, down from 8.3% in December.
Capital goods output, which includes manufacturing plants and machinery, rose 7.8% in January, easing from the revised 10.4% the previous month.
Meanwhile, output of primary goods rose 5.5% in January, compared to 3.8% in December.
Production of capital goods rose 7.8% in January, down from 10.4% in the previous month.
The production of infrastructure and construction goods rose by 7% against December's revised 7.4% growth.
"The IIP growth improved to a higher-than-expected 5.0% in January 2025, led by manufacturing and mining. The use-based data is less enthusing, with a sequential YoY pickup seen in only two segments (consumer non-durables and primary goods) amidst a slowdown in the other four," said Aditi Nayar, chief economist, ICRA.
"ICRA expects the IIP expansion to moderate to about 3-4% in February 2025 from 5% in January 2025," she added.
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Business NewsEconomyIndia’s retail inflation hits seven-month low of 3.61%, food inflation lowest since May 2023, industrial output quickens
First Published:12 Mar 2025, 04:12 PM IST
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