NEW DELHI (Reuters) - India’s annual retail inflation accelerated to its highest level in nearly six years, while industrial output unexpectedly contracted, showing that Asia’s third-largest economy remains troubled.
Annual retail inflation rose to 7.59% in January, partly driven by rising vegetable prices. December industrial output contracted 0.3%, after rising for the first time in three months in November.
The inflation rate was above December’s 7.35%, the 7.40% forecast in a Reuters poll of economists and the Reserve Bank of India’s medium-term target of 4%, the data released by the Ministry of Statistics on Wednesday showed.
Economists said the rising inflation could prompt the Reserve Bank of India to leave interest rates unchanged in coming months as it tries to support the faltering economy.
Retail inflation touched 8.33% in May 2014, according to Refinitiv data.
Reuters analysts had forecast a rise of 1.8% in industrial output for December. It contracted because of a 1.2% decline in manufacturing and 0.1% drop in electricity.
“Growth-inflation mix has seriously deteriorated ... there will be a longer pause in the rate-cutting cycle now,” said Rupa Rege Nitsure, chief economist at L&T Financial Holdings.
The RBI kept its policy rates steady last week, while downwardly revising the country’s growth forecast for the first half of the next fiscal year to 5.5% to 6.0% from an earlier projection of 5.9% to 6.3%.
Growth is forecast by the government to grow at an 11-year low of 5% in 2019/20 in the current fiscal year, ending in March.
Finance Minister Nirmala Sitharaman, who submitted her annual budget earlier this month, told parliament on Tuesday “green shoots were visible” and the economy was no longer in trouble. But today’s macro-economic data suggested those green shoots may have been temporary, economists said.
“The contraction in the IIP (industrial output) in December raises concerns about the sustainability of the green shoots in industrial activities that were visible till last month,” said Rumki Majumdar economist at Deloitte India.
Three analysts polled by Reuters after the release of inflation data estimated core inflation in the range of 4.1% to 4.3% in January, compared with 3.7%-4.2% in December. The government does not publish core inflation figures.
Retail food prices, which make up nearly half of India’s inflation basket, stood at 13.63% in January from a year earlier, against 14.19% in December. Vegetable prices rose more than 50% from a year-ago.
Addional reporting by Chris Thomas and Chandini Monnappa; editing by Larry King