Relief on inflation, rebound in factories

Hopes of an early rate cut were rekindled on Thursday as retail inflation fell back within the central bank's tolerance band in November, while factory output hit a three-month high in October, in good news for the economy that slowed in the second quarter.

- Rhik Kundu

Retail inflation based on the consumer price index (CPI) fell to a three-month low of 5.48% in November from the 14-month high of 6.21% in October, statistics ministry data showed. A Mint poll of economists had estimated retail inflation to fall to 5.5%, driven by a seasonal decline in vegetable prices.

Inflation fell as vegetable prices cooled due to rising supplies, while factory output growth touched 3.5% thanks to higher production of consumer durables and garments. "If the inflation trajectory as laid out by the Reserve Bank of India (RBI) in its December 2024 policy materializes and it remains around 4% beyond 2QFY26 along with a convincing fiscal arithmetic of Union Budget FY26, the long-awaited rate cut may take place in February 2025," said Devendra Pant, chief economist at India Ratings.

"The favourable progress of rabi sowing becomes critical for retail inflation, given that food inflation has been the leading driver in recent times.

This, along with the subdued trend in inflation of the majority of the items, is expected to help the headline retail inflation head closer to 4% from end-FY25," he added.