## Inflation Remains Above 4%, But Economic Activity Shows Promise
Retail inflation in India remained above 4% for the entire fiscal year 2024, with food inflation easing slightly to 4.85% in March 2024. However, economic activity seems to be on a more stable footing, with factory output, as measured by the Index of Industrial Production (IIP), rising to a four-month high of 5.7% in February 2024.
This data comes shortly after the Reserve Bank of India's (RBI) first bi-monthly monetary policy for FY25 on April 5th, where it projected robust growth prospects with GDP growth estimated at 7% for the current fiscal year. However, the RBI remained vigilant over inflation, projecting it at 4.5% for the full fiscal year and 4.9% for the first quarter.
RBI Governor Shaktikanta Das noted that inflation, which peaked at 7.8% in April 2022, appears to be on a downward trend. The monetary policy committee of the RBI is mandated to target retail inflation at 4% with a variation band of 2% on both sides.
Food inflation continued to be a concern in March, with consumer food price index-based inflation remaining high at 8.52%. Retail inflation in the food and beverage basket also remained elevated at 7.68%.
Analysts believe that the inflation data is in line with market expectations and is unlikely to significantly impact the RBI's policy decisions. They expect the RBI to maintain a cautious approach and avoid cutting interest rates in the near term.
Meanwhile, the IIP data was mixed, with some sectors experiencing contraction and others showing strong growth. Infrastructure and intermediate goods grew at a robust pace, while capital goods output remained muted. Overall, IIP grew by 5.9% between April and February 2024, and analysts expect it to grow by around 5% in March as well.
The outlook for inflation and economic growth remains uncertain, with several factors such as the monsoon, crude oil prices, and global economic conditions playing a role. The RBI is likely to closely monitor these factors and adjust its monetary policy accordingly.