Food inflation offsets core descent, IIP retracts a touch

• Headline consumer price inflation (CPI) stayed put at 5.1% than decline in February as the food gauge surged higher. Core inflation - down to a 52-month low of 3.4% - could not entirely offset the pressure from food
• Food inflation accelerated to 8.7% from 8.3% in January. While the kharif harvest has been helpful in softening foodgrain inflation, vegetables continue to play the spoilsport. Thankfully, disinflation in the non-food component of CPI (at 2.9% in February from 3.1% previous month) prevented the headline print from rising.
• We expect CPI inflation to continue to soften next fiscal to 4.5% from an estimated 5.5% this fiscal, supported by the assumption of a normal monsoon, softer domestic demand, and benign global oil prices.
• The Index of Industrial Production (IIP) decreased to 3.8% on-year in January from 4.2% in December (revised up from the previous estimate of 3.8%), driven by mixed performance in both consumption and industrial sectors
• Growth in manufacturing slowed (3.2% on-year in January vs 4.5% previous month), while that in electricity (5.6% vs 1.2%) and mining (5.9% vs 5.2%) accelerated.
• We expect GDP growth to moderate to 6.8% in fiscal 2025 from 7.6% this fiscal as: regulatory measures against risky lending and transmission of past rate hikes are expected to weigh on domestic demand, government support is likely to weaken as fiscal consolidation is pursued, and growth in India’s major trading partners is expected to be uneven.