Inflation seen rising slightly in January

Rising food prices are expected to have pushed retail inflation slightly higher last month, but weaker demand prompted factories to slow output in December, a Reuters poll showed.

The uptick in inflation is unlikely to change forecasts for more interest rate cuts by the Reserve Bank of India (RBI), after it made its first cut for 20 months in January, when the key repo rate was lowered by 25 basis points to 7.75 per cent.

The median forecast from survey of 29 economists showed annual retail inflation running at 5.4 per cent last month, faster than December's 5.0 per cent but still below the RBI's target of 6 per cent by next January and significantly slower than the 7.2 per cent it averaged through 2014.

"We are looking at a slight pick up in food inflation, particularly driven by vegetables," said Jyotinder Kaur, principal economist at HDFC Bank, adding that it would be some time before the rate cut's effect showed in core inflation figures.

Predictions for wholesale price inflation were similarly muted, due to the sharp fall in oil prices globally. That gauge is expected to show 0.41 per cent for January, faster than December's 0.11 per cent, but it would still be one of the lowest readings since mid-2009.

The poll's consensus shows factory output grew 1.6 per cent in December, slower than November's 3.8 per cent.

Should that prove correct it may temper whatever optimism investors derived from India's latest gross domestic product growth data which, using a new calculation method, suggested India's growth was outpacing China.

Analysts doubted whether the benefits of the rate cut would show for some while in the output data.

"Given lower oil prices and the scope for the RBI to cut further, there could be some revival of industrial production as we go forward but this will take a while to materialise," Vishnu Varathan, Mizuho Corporate Bank's senior economist, said.

(Polling by Shaloo Shrivastava and Siddharth Iyer; Editing by Simon Cameron-Moore)