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India Inflation Eases, Industrial Production Growth Beats Expectations

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India's consumer price inflation unexpectedly slowed in January, mainly due to a fall in food prices, while industrial production grew at a faster-than-expected pace at the end of last year.

The consumer price index rose 2.05 percent year-on-year following a 2.11 percent climb in December, which was revised from 2.19 percent, figures from the Central Statistics Office showed on Tuesday.

Economists had expected 2.54 percent inflation. In January 2018, inflation was 5.07 percent.

Food inflation remained in negative territory in January, at -2.17 percent versus -2.65 percent in December.

Vegetable prices tumbled 13.32 percent and prices of fruits decreased 4.18 percent. Egg prices fell 2.44 and prices of pulses and products declined 5.50 percent.

Core inflation remained high, above 5 percent in January.

Last week, the Reserve Bank of India unexpectedly cut the key interest rate and shifted its policy stance to "neutral" from "calibrated tightening."

"We maintain our view that that elevated core inflation is a reflection of the recent strength of the economy, and expect it to remain high as long as the economy is growing fast," Capital Economics economist Shilan Shah said.

"With little spare capacity remaining in the economy, looser monetary policy runs the risk of triggering a sharp inflation rebound," Shah added.

The RBI lowered the path of CPI inflation to 2.8 percent in the fourth quarter of 2018-19, 3.2-3.4 percent in the first half of 2019-20 and 3.9 percent in the third quarter of 2019-20, with risks broadly balanced around the central trajectory.

The outlook for food inflation appears particularly benign and the unusual pick-up in the prices of health and education could be a one-off phenomenon, the bank said. The oil price outlook continues to be hazy, the RBI added.

Separate data from the statistical office on Tuesday showed that industrial production rose 2.4 percent year-on-year in December, which was faster than the 1.5 percent gain economists had forecast.

Manufacturing output grew 2.7 percent and electricity generation rose 4.4 percent. In contrast, mining production decreased 1 percent.

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