Retail inflation edges up for third month

By Manoj Kumar

NEW DELHI (Reuters) - Consumer inflation edged up in February for the third straight month, mainly driven by food prices, underscoring the risk of a rebound in inflationary pressures from rising commodity prices.

The data comes ahead of Reserve Bank of India's monetary policy meeting on April 7 and a week after the central bank cut interest rates by 25 basis points for the second time this year, acknowledging a deficit cutting roadmap set by the government in the 2015/16 budget.

A plunge in global oil prices and weak consumption have driven down inflation in Asia's third-largest economy from double digits in 2013, giving room to the central bank to cut interest rates to spur growth.

But consumer prices rose more than expected to 5.37 percent in February, compared with an upwardly revised inflation reading of 5.19 percent in January.

Economists had forecast February retail inflation at 5.2 percent in a Reuters poll.

Industrial output slowed down to 2.6 percent in January from upwardly revised 3.2 percent growth in the previous month, a separate statement by the Statistics Ministry said.

The data, with 2004/05 as a base year, has become less relevant after the government changed the methodology as well as the base year for GDP calculations last month.

India, which has long battled volatile prices, formally adopted inflation targeting in February, a historic monetary policy overhaul that marked a victory for Reserve Bank of India Governor Raghuram Rajan.

The government and the bank set a consumer inflation target of 4 percent from next year, with a band of plus or minus 2 percentage points.

Food inflation rose to 6.79 percent in February compared to 6.06 percent in the previous month, the statement by Ministry of Statistics showed.

Among the BRICS group of major emerging economies, China's consumer inflation picked up in February to 1.4 percent, while in Brazil, inflation hit the highest in a decade at 7.7 percent.

Many economists see at least one more rate cut this year, but some fear inflation could accelerate in coming months after a hike in local petrol and diesel prices and a possible seasonal rise in food prices.

"We expect the RBI to cut rates by 25 basis points by June and pause after that," said Siddharth Sanyal, an economist at Barclays.

Since taking charge in May, Prime Minister Narendra Modi's government has taken steps to tame prices, including controlling the price paid to farmers of wheat and rice crop.

Finance Minister Arun Jaitley, who presented his first full-year budget last month, has set a growth target of 8.5 percent for the 2015/16 financial year beginning in April and inflation at 5 percent by the end of March.

India's economy is projected to expand at 7.4 percent in the current fiscal year, its fastest pace in three years based on the new GDP series estimates.

(Reporting by Manoj Kumar; Editing by Malini Menon and Alison Williams)