Inflation eases to 6-month low 3.6% as veg prices fall

Retail inflation in February fell to levels not seen in six months and factory output growth reached an eightmonth high in January, two sets of data released Wednesday showed, painting a healthy picture of the Indian economy in the short-term.

- Auhona Mukherjee

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%.