Jan IIP better than expected, but Feb CPI inflation worsens

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Index of Industrial Production (IIP) for January was 2.4 percent, higher than the 1.2 percent estimated by a CNBC-TV18 poll. Economists said the number signaled that industrial growth may be bottoming out.

"This could be signs of a nascent recovery in industrial production,” Samiran Chakraborty of Standard Chartered said in an interview to CNBC-TV18.

However, consumer price index-based (CPI) inflation for February rose to 10.9 percent, the third successive month when it has been above the psychological mark.

This could put the RBI in a bind as it reviews policy interest rates at its meeting next Tuesday.

The increase in consumer inflation was driven by higher food prices, than an increase in fuel prices. This, despite anecdotal evidence that food prices may have moderated in February.

Wholesale price index-based inflation has been declining, making a case for the RBI to cut interest rates. At the same time, RBI cannot ignore high CPI inflation, even if it can be argued that monetary policy cannot influence food prices.

Also, RBI will also have to keep in mind the widening current account deficit, even though trade deficit in February moderated significantly to USD 14.9 billion.

"We expect the trade deficit to widen marginally in March from February’s level, though it should remain much smaller than the Q4 average of USD19.8bn. Notwithstanding the monthly fluctuations in the trade deficit, we expect the current account deficit to rise to 5.1 percent of GDP in FY13 from 4.2 percent in FY12 because of a lower invisibles balance, our view of weak global growth in 2013 and persistent domestic demand-supply imbalances," said a note by brokerage house Nomura to clients.