India's inflation accelerated more-than-expected in July, led by higher food prices, to linger above the central bank's 5 percent target for the fourth straight month, figures from the Central Statistical Office showed Friday.
Meanwhile, industrial production grew more-than-expected in June.
The consumer price index rose 6.07 percent year-on-year following 5.77 percent increase in June. Economists had forecast 5.9 percent inflation.
Separate data from the agency showed that industrial production grew 2.1 percent year-on-year in June, exceeding expectations for 1.6 percent growth.
Manufacturing output rose 0.9 percent and mining production grew 4.7 percent. Production in the electricity sector increased 8.3 percent.
Headline inflation is now the highest in nearly two years and is close to the upper end of the 4 percent plus/minus percentage points monetary policy target of the Reserve Bank of India that was accepted by the government last week.
Risks to the inflation target of 5 percent for March 2017 continue to be on the upside, Governor Raghuram Rajan said in his final RBI policy review on Tuesday when he left interest rates unchanged.
The RBI's key lending rate, the repo, is now at 6.5 percent, the lowest since early 2011.
While the direct impact of the public sector wage hikes after the implementation of the seventh pay commission recommendations may be looked through, its effect on inflation expectations will have to be carefully monitored so as to pre-empt a generalization of inflation pressures, the bank said.
The possible roll-out of the goods and services tax later this financial year ending March 31, 2017, could also inflate prices.
Food price inflation accelerated to 8.35 percent from 7.79 percent in July. The central bank hoped that a favorable monsoon could help to moderate food prices.
On a month-on-month basis, the CPI rose 0.77 percent in July and food prices grew 1.31 percent.
Rajan, a former IMF Chief Economist known for his early warning on the 2007-08 global financial crisis, is set to step down as the 23rd Governor of the RBI on September 4 after a three-year term and return to academia.
"Prospects for monetary policy depend in part on who is chosen to succeed Governor Raghuram Rajan at the RBI but, for now, we believe the easing cycle is over," Capital Economics economist Shilan Shah said.
Citing the industrial production figures, the economist said the weak figures add to the impression that the soaring GDP data continue to exaggerate the strength of India's economy.
For comments and feedback: editorial@rttnews.com