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In a double delight, retail inflation eased to a one-year low of 5.72 per cent - staying below the upper tolerance limit for two months in a row, while factory output rose sharply to 7.2 per cent on the back of healthy growth in manufacturing.
The retail inflation numbers based on Consumer Price Index (CPI) will provide some room for the Reserve Bank to further moderate the quantum of hike in key interest rate or even press a pause button.
The RBI has been on a rate hiking spree since May 2022 in its bid to tame inflation, having raised the repo rate by a cumulative 225 basis points (bps).
The last hike was only 35 bps compared to three back-to-back increase of 50 bps.
As per the data released by the National Statistical Office (NSO), the retail inflation based on Consumer Price Index (CPI), declined to a one-year low of 5.72 per cent in December 2022 mainly due to cooling prices of vegetables, according to official data released on Thursday.
The CPI-based retail inflation was 5.88 per cent in November 2022 and the previous low was 5.66 per cent in December 2021.
The retail inflation is on a downward trajectory since October.
Inflation in the food basket was at 4.19 per cent in December as against 4.67 per cent in November and 4.05 per cent in December 2021.
In the vegetable basket, it dropped by over 15 per cent on annual basis.
The prices of fruits showed a modest rise of 2 per cent in December 2022.
The rate of price rise was also negligible in 'oils and fats' and 'sugar and confectionery'.
However, spices became dearer by nearly 20 per cent and cereals by about 14 per cent.
The index of 'fuel and light' was up by about 11 per cent on annual basis in December.
India's industrial production growth, measured on the Index of Industrial Production (IIP), rose to a five-month high of 7.1 per cent in November on the back of better showing by manufacturing, showed another set of data released by NSO.
The rise in the factory output measured by the Index of Industrial Production (IIP) comes after a contraction of 4.2 per cent in October.
The previous high was recorded in June 2022 at 12.6 per cent.
As per the IIP data released by the National Statistical Office (NSO), the manufacturing sector's output grew by 6.1 per cent in November 2022.
The mining output rose by 9.7 per cent from 4.9 per cent in November 2021.
The growth in power generation increased by 12.7 per cent in November 2022 compared to 2.1 per cent in the year-ago month.
The IIP numbers are announced with a lag of one month.
As per the flexible inflation targeting (FIT) regime, the RBI has to ensure the retail inflation (CPI) at 4 per cent with a margin of 2 per cent on either side.
The RBI had to submit a report to the central government as it failed to keep the inflation below the upper tolerance band of 6 per cent for three consecutive quarters since January 2021.
The next meeting of the RBI Governor-headed Monetary Policy Committee (MPC) which decides on policy rates is scheduled during February 6-8.
The central bank has raised the short-term lending rate by 2.25 percentage points in five tranches since May 2022 to tame the high inflation amid the geopolitical situation and resulting disruption in the global supply chain.
The government too in part has taken several measures, like curbs on exports of certain commodities, to check prices in the domestic market.
Commenting on inflation numbers, Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India said the core CPI also moderated to 6.09 per cent in December, compared to 7.09 per cent in April 2022.
However, in the past 20 months core CPI has remained above 5.7 per cent and the average is at 6.07 per cent, which indicates that core CPI remained stagnant and elevated.
On IIP, Aditi Nayar, Chief Economist, ICRA said that the year-on-year growth of most available high-frequency indicators has moderated in December 2022 relative to November 2022, partly reflecting an unfavourable base related to the post-festive season rebound seen in December 2021.