Retail Inflation Eases To 4.28% In March, Factory Output Grows 7.1% In February

Retail or consumer inflation eased for the third straight month in March to 4.28 per cent, driven by lower food prices, as compared to 4.4 per cent in February, government data showed on Thursday. Factory output data, which was also released on the same day, showed industrial production - based on Index of Industrial Production (IIP) - rose 7.1 per cent in February, slowing from downwardly revised 7.4 per cent year-on-year increase in January. But the IIP numbers were better than what economists had expected. The manufacturing sector posted a strong growth of 8.7 per cent in February. 

Analysts polled by Reuters had forecast March's consumer price inflation to soften to 4.20 per cent from 4.44 percent in the previous month. Last week, the Reserve Bank of India (RBI) kept its repo rate - the key rate at which it lends to banks - on hold and sharply cut its projection for price rises from April through September.

The Monetary Policy Committee (MPC) lowered its inflation forecast for April-September to 4.7-5.1 per cent from 5.1-5.6 given at the February meeting.

Overall, inflation in the food basket was 2.81 per cent, lower than 3.26 per cent in February.

However, analysts remain cautious on inflation given the sharp hike in global crude prices. An increase in MSP of agricultural produce, hike in allowances to employees of state governments, high government spending ahead of elections and pass-through of the past increase in commodity prices are all likely to add to the inflationary pressure, said Teresa John, economist at Nirmal Bang.

"We expect that inflation expectations in the period ahead will possibly be shaped by oil price movement, impact of minimum support prices inclusion, fiscal slippage as GST collections remain low, and monsoon forecasts. A greater challenge would be for the RBI to set policy sentiments correctly in the coming period as higher yields, inflationary pressures and election cycle in India and US both are likely to lead to market volatility. We expect inflation prints to hover around the 5-percent mark in FY18-19," said Anis Chakravarty, lead economist and partner, Deloitte India, Mumbai.

Economists expected factory output growth at 7 per cent in February. Infrastructure output, which comprises eight core industries and accounts for nearly 40 per cent of total industrial production, grew 5.3 per cent in February from a year ago.