RBI unlikely to shift its policy stance despite pick-up in inflation

India consumer price inflation came in at 5.4% y/y in Feb, up from 5.2% in Jan (the latter was revised up from 5.1%). This was higher than most had expected (both our forecast and the Bloomberg median were 5.2%). 

Today's other data release showed that industrial production (IP) grew by 2.6% y/y in Jan. That was stronger than most had expected (the Bloomberg consensus was +0.7%; our forecast was +2.0%). The December data were also revised up to show growth of 3.2% rather than the original estimate 1.7%. 

Capital Economics notes in a report on Thursday:

• While these stronger growth figures are welcome, caveats abound. First, this is a volatile series. Second, growth is still extremely weak. Third, the latest numbers are based on the old data series. 
  
  
• Consumer price inflation picked up in February, having already increased sharply since late 2014. But the rebound has been driven entirely by food prices. Core inflation remains low and flat. The Reserve Bank will not shift its policy stance as a result.