New Delhi, Mar 12 (PTI) Subdued food prices in February pulled down retail inflation below the Reserve Bank's median target of 4 per cent while the country's manufacturing sector pushed the key factory output index to 5 per cent in January, showed data released by the government on Wednesday.

The sharp decline in inflation has raised the prospects for another rate cut by the Reserve Bank of India (RBI) on April 9. If RBI reduces rate next month, it will be the second rate cut within two months.

Consumer Price Index (CPI)-based retail inflation slipped to seven-month low of 3.61 per cent in February mainly due to easing prices of vegetables, eggs, and other protein-rich items, creating space for the RBI to go for another cut in interest rate next month.

The headline inflation was at 4.26 per cent in January and 5.09 per cent in February 2024. The previous low was witnessed in July.

The CPI has been in the comfort zone of the RBI since November 2024.

The RBI, which has been mandated to ensure retail inflation remains at 4 per cent (+/- 2 per cent), has reduced the short-term lending rate (repo) by 25 basis points last month on easing concerns on the inflation front.

The central bank is scheduled to announce the next set of bi-monthly monetary policy on April 9.

A significant decline in headline inflation and food inflation during February has been mainly attributed to decline in inflation of vegetables, egg, meat and fish, pulses and products, and milk and products.

Key items having lowest year-on-year inflation in February were ginger (-35.81 per cent), jeera (-28.77 per cent), tomato (-28.51 per cent), cauliflower (-21.19 per cent), garlic (-20.32 per cent).

On the other hand, top items with highest inflation were coconut oil (54.48 per cent), coconut (41.61 per cent), gold (35.56 per cent), silver (30.89 per cent), and onion (30.42 per cent).

The second set of data released by the National Statistics Office (NSO) showed that the growth in Index of Industrial Production (IIP), a measure of performance of industries, accelerated to 5 per cent in January 2025, driven by a rebound in manufacturing activity.

The government has also revised the December 2024 industrial output figure to 3.5 per cent from the provisional estimate of 3.2 per cent released in the previous month.

The expansion in IIP was at 4.2 per cent in January 2024.

In the April-January period this fiscal year, the IIP grew 4.2 per cent, slower than 6 per cent recorded in the year-ago period.

The manufacturing sector's output grew 5.5 per cent in January 2025, up from 3.6 per cent in the year-ago month.

Mining production growth declined to 4.4 per cent from 6 per cent year-on-year.

Power output growth slowed to 2.4 per cent in January 2025 from 5.6 per cent a year ago.

ICRA Chief Economist Aditi Nayar said the CPI inflation declined sharper than expected to a seven-month low, appreciably below the mid-point of the RBI's Monetary Policy Committee's medium-term target range, led by a welcome cooling in food inflation.

"However, we believe that the sequential uptick in vegetables inflation in March 2025 is likely to prevent a further softening in the food and beverages inflation print in the month, after the substantial cooling seen over the past four months," she said.

Nayar further said the February inflation print falling well below 4 per cent has cemented the expectation of a back-to-back 25 basis points rate cut in the April 2025 MPC meeting. This may be followed by another 25 bps repo rate cut either in the June or August meetings this year, she added.

On IIP, Mahendra Patil, founder and managing partner, MP Financial Advisory Services LLP, said the data indicates strengthening industrial activity, particularly in manufacturing and mining.

"This growth, combined with easing retail inflation at 3.61 per cent in February 2025, signals positive momentum for the overall economy," he said.

Both data were released after close of the stock markets.

Benchmark BSE Sensex dropped 72 points on Wednesday, extending its losing run to the fourth day as IT shares retreated due to concerns over US growth. The NSE Nifty, too, slipped 27.40 points to end at 22,470.50. PTI NKD CS TRB

Inflation below target boosts prospects of another central bank policy rate cut, supported by softer food prices. Retail CPI inflation fell below the central bank's 4 per cent median target in February due to broad based easing in food prices, reinforcing expectations of an imminent repo rate cut at the next bi monthly monetary policy review. Separately, industrial production accelerated to 5 per cent in January, led by manufacturing growth, with the December figure revised upward, signalling strengthening industrial momentum alongside softer inflation.