Retail inflation in February fell to levels not seen in six months and factory output growth reached an eight-month high in January, two sets of data released Wednesday showed, painting a healthy picture of the Indian economy in the short-term.
India’s benchmark inflation in February fell to 3.6%, below the Reserve Bank of India’s target of 4% after five months , boosting hopes of another rate cut by the central bank’s Monetary Policy Committee next month after a 25-basis point reduction in February . One basis point is one hundredth of a percentage point.
The 70-basis point drop in headline inflation number between January and February came on the back of a fall in vegetable prices which has more than neutralised a rise in non-food, non-fuel prices. Another data release shows a return to the trend of growing momentum in industrial activity in January after a dip in December 2024 with the Index of Industrial Production (IIP) growth for January coming in at an eight-month high of 5.1% .
The benchmark inflation rate, as measured by the Consumer Price Index (CPI), came down to 3.6% in February from 4.3% in January. February’s inflation number is the lowest since July 2024 when this number was 3.6%. The fall in inflation between January and February is primarily a reflection of moderation in food inflation which has fallen from 6% to 3.8%. Within the food basket, inflation for vegetables saw a contraction of 1.1% in February, compared to a positive rate of 11.4% in January. Among other important sub-categories in the food group, inflation for cereals came in at 6.1% in February, largely unchanged from the 6.2% in January, and pulses contracted at 0.4%.
While fuel inflation, remained in contraction for the 18th consecutive month in February, core inflation – it measures the non-food non-fuel part of the CPI basket – stood at 4% in February. This is the highest core inflation print since November 2023.
February’s CPI print has positively surprised analysts. A Bloomberg poll of economists estimated this number at 4%. The latest inflation number adds credibility to the Monetary Policy Committee’s (MPC) projection of 4.4% inflation in the quarter ending March 2025 and 4.8% for the full fiscal.
“Headline inflation, after moving above the upper tolerance band in October, has since registered a sequential moderation in November and December. Going ahead, food inflation pressures, absent any supply side shocks, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects. Core inflation is expected to rise but remain moderate”, RBI governor Sanjay Malhotra said in his written statement after the February 7 Monetary Policy Committee (MPC) meeting.
In another set of statistics, Index of Industrial Production (IIP) growth for January came in at an eight-month high of 5.1% compared to 3.6% for the month of December 2024. The latest IIP data revives momentum in industrial activity seen in rising annual growth in IIP from August 2024, which was disrupted by the moderation in December 2024.
The two biggest components of IIP grew at a faster pace in January and more than compensated for the loss of momentum in its third sub-category. Manufacturing, which accounts for almost three fourth of the index, grew at 5.5% in January compared to 3.4% in December 2024. Mining and quarrying, accounting for 14% of the index, grew at 4.4% compared to 2.7% in December. Growth in electricity, however, which accounts for nearly 8% of the index, slowed to 2.4% down from 6.2% in December.
According to IIP’s use-based classification, primary goods, having a weight of 34% in the index, was the major contributor to the uptick in IIP. The category grew at 5.5% in January, compared to 3.8% in December. Consumer goods, which have a share of almost 28%, also grew at 2.6%, compared to a contraction of 2% in the previous months. The other categories – capital goods, intermediate goods and infrastructure/construction goods – saw a slowdown from the previous month.
To be sure, for the April-January period, overall IIP growth in 2024-25 stands at 4.2% compared to 6% in 2023-24, underlining a loss of momentum in industrial activity in the ongoing fiscal year. The cumulative numbers for the period from April 2024 -January 2025 show that IIP has seen a broad-based loss of momentum. All the categories except for the sub-category of consumer durables have seen slower growth in April-Jan 2024-25, compared to the corresponding period for 2023-24.