Inflation hits 4-month low, factory output up RBI gets more room to keep rates on hold as CPI eases to 4.4% in Feb

Retail inflation slowed for a second straight month in February, giving the Reserve Bank of India room to keep interest rates on hold for longer.

February inflation fell to a 4-month low of 4.44 per cent — still above the RBI’s target of 4 per cent — on cheaper food articles and lower cost for fuel. Retail inflation, based on Consumer price index (CPI), was at 5.07 per cent in January. In February 2017, however, it was 3.65 per cent.

Industrial production grow at a high rate of 7.5 per cent in January 2018 against 3.5 per cent in the year-ago month on the back of firm manufacturing sector coupled with higher offtake of consumer and capital goods.

The Index of Industrial Production (IIP) had grown at 7.1 per cent in December 2017, according to the data released by the Central Statistics Office (CSO) on Monday. The IIP growth in January this year was mainly on account of uptick in manufacturing sector which constitutes 77.63 per cent of the index. It grew by 8.7 per cent during the month as compared to 2.5 per cent in January 2017, showing signs of recovery in the economy.

Data released by the Central Statistics Office (CSO) showed that the rate of price rise in the consumer food segment was lower at 3.26 per cent in February, as against 4.7 per cent in the previous month.

"We see the RBI on a long pause," said Indranil Pan, chief economist at IDFC Bank in Mumbai. "Some uptick can happen, however, we do not see the risk of inflation going beyond 6 per cent."

Inflation in vegetables was 17.57 per cent last month, down from 26.97 per cent in January), and for fruits it was 4.80 per cent (as against 6.24 per cent).

Milk and its products too were less expensive with inflation print of 4.21 per cent, cereals and products at 2.10 per cent, meat & fish at 3.31 per cent while for eggs the prices grew at a slower pace of 8.51 per cent.

"The RBI will have room to push back a rate hike, but not for too long as input price pressures have been on the rise over the past one year, and price pass-through to consumers is now taking place," said Teresa John, economist at Nirmal Bang Pvt. Equities.

“It is good and much lower than our expectation of 5 percent. Bond yields should react positively on Tuesday,” said Anjali Verma, Economist, Phillipcapital India in Mumbai.

Industrial production grew at 4.1 per cent in April-January this fiscal as compared to 5 per cent in same period in previous financial year. In January, capital goods, a barometer of investments, showed a sharp increase in output by 14.6 per cent, as against a decline of 0.6 per cent year ago. Consumer non-durable goods, which are mainly fast moving consumer goods, too showed an increase of 10.5 per cent as against a growth of 9.6 per cent. Consumer durable goods recorded a growth rate of 8 per cent in January 2018 against a contraction of 2 per cent a year ago.

However, the mining sector saw a flat growth of 0.1 per cent compared to 8.6 per cent a year ago.