Retail inflation accelerates in January, but stays below RBI's target

India's retail inflation accelerated in January after shifting to a new base year for calculating prices, but stayed well below the Reserve Bank of India's (RBI) target, bolstering prospects for further interest rate cuts.

Consumer prices rose an annual 5.11 percent compared with a 4.28 percent gain in December, the statistics department said after it changed the base year for measuring inflation to 2012 from 2010.

Under the old series, inflation was reported at five percent in December.

"CPI (consumer price index) combined in January is 5.11 percent which was in December 4.28 percent. CPI urban is 4.96 percent, December number was 4. 50 percent, and CPI rural January number is 5.25 percent and December number is 4.16 percent," said Ashish Kumar, an official of statistics department.

The revamped index carries a higher weight for education and health services, but has a lower weight for food and fuel items, which authorities say better reflects changing consumption patterns.

The RBI aims to keep inflation at or below 6 percent in the period to January 2016 and is widely expected to resume its monetary easing after Finance Minister Arun Jaitley presents his annual budget on February 28.

"Food price inflation was higher than non-food inflation - that is one reason for slightly lower inflation. Secondly, the small lower is also because geometric mean gives us slightly lower mean than arithmetic mean. But compare January inflation, whichever method you apply, January inflations compared to December inflation is slightly higher," said chief statistician, T.C.A. Anant.

The central bank kept its policy repo rate unchanged at 7.75 percent early this month after surprising investors in January with the first interest rate cut in 20 months.

The data comes days after revisions to the way New Delhi calculates gross domestic product (GDP) have dramatically lifted reported growth rates, making the country officially the fastest growing major economy in the world.

With the economy suddenly appearing to be motoring again, the RBI may have to think twice about the risk of stoking inflation before deciding to lower interest rates again.

Adding to the conundrum, annual industrial output growth slowed to 1.7 percent in December from 3.9 percent a month before, separate government data showed.

A collapse in global oil prices has unleashed a wave of monetary easing around the world as central bankers seek to stave off deflation and bolster their economies.