Jan industrial output up 2.4 percent, Feb CPI accelerates

MUMBAI (Reuters) - India's industrial output grew a faster-than-expected 2.4 percent in January from a year earlier, government data showed on Tuesday. Analysts polled by Reuters had expected the output to grow 1.2 percent annually.

Revised data for December showed production at factories, mines and utilities shrank 0.5 percent compared with 0.6 percent contraction earlier.

Manufacturing, which constitutes about 76 percent of industrial production, grew 2.7 percent from a year earlier.

Meanwhile, annual consumer price inflation accelerated to 10.91 percent in February from the previous month, government data showed.

Consumer prices rose an annual 10.79 percent in January.

COMMENTARY

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

"It's a tale of two diverse numbers. IIP has come in much higher than anticipated which is a positive news, but is a short-lived relief as the CPI came in significantly higher and the concern on food continues.

"Food inflation has gone up 0.78 percent month-on-month and more importantly, the RBI has been tracking the core CPI, which too has moved up 0.61 percent after a brief respite. Core CPI is a concern.

"On IIP, our full year forecast is 1.5-2.0 percent, but the larger focus in terms of the monetary policy takeaway would be CPI. It would weigh on policy concerns. However, as of now we retain our call of 25 basis points of rate cut on Tuesday."

BACKGROUND

- Manufacturing activity has been squeezed by high borrowing costs and a slowing economy, and the latest data is expected to prepare the ground for a possible cut in interest rates next Tuesday when the central bank reviews policy.

- Car sales in India plunged the most in more than 12 years, slumping 25.7 percent in February, an industry body said on Monday, as sluggish economic growth continues to weigh on demand.

- Headline inflation data due on Thursday, which is expected to show February wholesale prices rose at their slowest annual pace in more than three years, should strengthen chances of a rate cut.

- However, last week Reserve Bank of India Governor Duvvuri Subbarao rejected the notion that high inflation is the "new normal," noting that many of the supply-driven causes of Indian inflation can be corrected by appropriate policies.

(Reporting by Treasury, Companies, Markets teams; Editing by Ranjit Gangadharan)