Retail inflation dips to 5-month low in Jan; IIP slows to 3.21% in Dec

The data show higher inflation in rural areas at 4.64 per cent, compared to 3.87 per cent in urban regions

Driven by easing food prices, India's consumer price index (CPI)-based retail inflation fell to a five-month low of 4.31 per cent in January from 5.22 per cent in December, thus raising hopes for another repo rate cut by the Monetary Policy Committee (MPC) during its April meeting.

 

Separately, industrial production growth slid to a four-month low in December.

 

The index of industrial production (IIP) grew by 3.21 per cent in December from 4.96 per cent in November, on account of deceleration in manufacturing growth.

 

Data released by the statistics ministry on Wednesday showed that food inflation on a year-on-year (Y-o-Y) basis moderated to 6.02 per cent in January from 8.39 per cent in December.

 

Vegetable prices, that kept the food rates high, declined further to 11.35 per cent from 26.6 per cent during this period. 

 

The prices of other major food items like cereals (6.24 per cent), egg (1.27 per cent), meat (5.25 per cent) and pulses (2.59 per cent) also decelerated.

 

Rajani Sinha, chief economist at CARE Ratings, said that robust kharif production and sound progress of rabi sowing have brightened the outlook of food inflation, along with healthy reservoir levels. These are expected to provide an essential cushion for kharif sowing in FY26, if the monsoon lags. 

 

Meanwhile, the prices of milk (2.85 per cent), oils (15.64 per cent) and fruits (12.22 per cent) accelerated during the month.

 

Core inflation, which excludes the more volatile food and fuel sectors, remained largely unchanged at 3.7 per cent during the month.

 

The prices for fuel (-1.38 per cent) remained in contraction, while the prices for items such as recreation (2.64 per cent), education (3.83 per cent) and health (3.97 per cent) decelerated. 

 

Earlier this month, the Reserve Bank of India’s (RBI’s) MPC slashed the policy repo rate by 25 basis points (bps) to 6.25 per cent for the first time in nearly five years.

 

Addressing his first post policy review press conference, RBI Governor Sanjay Malhotra said food inflation pressures and absence of 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. Rising uncertainty in global financial markets coupled with continuing volatility in energy prices and adverse weather events present upside risks to the inflation trajectory,” he added.

 

Aditi Nayar, chief economist, ICRA Ratings, said growth-inflation outlook suggests that there is room for another 25 bps rate cut in either April or June meetings. 

 

Sinha echoed similar views. “The moderation in inflationary pressure should support another 25-bps rate cut in the April MPC meeting,” she added.

 

On the other hand, the slowdown in IIP growth in December was driven by deceleration in manufacturing (3 per cent). However, growth in the electricity (6.2 per cent) and mining (2.6 per cent) sectors accelerated. 

 

The IIP data further showed that seven of the 23 manufacturing sectors like manufactured food products, leather and recorded media printing, among others, contracted during the month.

 

In terms of use-based categories, growth accelerated in intermediate goods (5.9 per cent), primary goods (3.8 per cent) and capital goods (10.3 per cent). On the other hand, growth in infrastructure goods (6.3 per cent) and consumer durables (8.3 per cent) decelerated during the month. Growth in consumer non-durables (-7.6 per cent) significantly contracted.

 

Paras Jasrai, senior economic analyst, India Ratings, said that contraction in consumer non-durables is due to the lagged impact of elevated food inflation which would have kept the demand subdued in the month. 

 

“Nevertheless, a reasonable growth in consumer durables indicates steady progression in discretionary spending. The decline in food inflation in January, monetary easing and tax break would aid in providing a mild boost to consumption demand,” he added.