Headline CPI likely unchanged at 5.1 percent, industrial growth may edge up to a three-month high of 4.2 percent

Headline retail inflation and growth in industrial production are two of the most important high-frequency indicators of the state of the Indian economy.

India's headline retail inflation rate in February is not likely to have changed from January's 5.1 percent, extending its stay within the Reserve Bank of India's (RBI) tolerance range of 2-6 percent to a sixth consecutive month, according to a Moneycontrol survey of 15 economists.

Industrial growth, however, may have edged up to a three-month high of 4.2 percent in January, the survey showed.

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The Ministry of Statistics and Programme Implementation will release retail inflation data for February and industrial production data for January at 5:30 pm on March 12.

Inflation and Monetary Policy

After a 0.7 percent month-on-month (MoM) decline in the food index helped drag down food inflation to 8.30 percent and the headline Consumer Price Index (CPI) inflation number to a three-month low of 5.10 percent in January, economists see an uptick in some food prices as the key reason for the overall inflation print for February not falling from the previous month.

"Even as prices of vegetables, such as potatoes, onions, and tomatoes, have remained virtually flat MoM, prices of other vegetables are likely to have edged higher," ANZ economists said in a note on March 8.

"On a sequential basis, the increase in food CPI was driven by cereals, fruits, and meat, which was partly offset by a drop in prices for eggs, pulses, and spices," economists from Barclays added.

Core inflation – or inflation excluding food and fuel items – is seen steady around 3.6 percent.

Even if inflation does not rise in February, it will be the 53rd month in a row that it would be above the RBI's medium-term target of 4 percent. The central bank is keen to bring it down to the target on a durable basis, with Governor Shaktikanta Das saying in his statement in the minutes of the February 6-8 meeting of the Monetary Policy Committee (MPC) that the "'last mile' of disinflation…can be sticky".

Also Read: Case for rate cuts strong if inflation keeps declining, says MPC's Ashima Goyal

On February 8, the MPC left the repo rate unchanged at 6.5 percent for the sixth meeting in a row. While India's interest rates are at their highest level in nearly eight years, economists think the continued better-than-expected growth performance of the economy could allow the MPC more time to ensure inflation, especially food inflation, falls to acceptable levels on a durable basis.

The RBI sees CPI inflation averaging 5 percent in the current quarter, 4 percent in July-September, and 4.7 percent in January-March 2025.

Industrial Growth

The statistics ministry will also release the Index of Industrial Production (IIP) data for January at 5:30 pm on March 12. The data is expected to show that production rose by 4.2 percent in the first month of 2024 – the most in three months.

Industrial growth, as per the IIP, had risen to 3.8 percent in December 2023 from November's eight-month low of 2.4 percent. In January 2023, IIP growth was at 5.8 percent.

The eight core industries – coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity – make up around 40 percent of the IIP. As such, it is seen as a lead indicator of industrial growth data.

But even as core sector growth fell, other indicators of activity were on the up. For instance, India's manufacturing Purchasing Managers' Index (PMI) rose to a four-month high of 56.5 in January. Further, India's merchandise exports rose 3.1 percent year-on-year to $36.92 billion. In December, exports had increased by just 1 percent.