January saw annual consumer inflation of 5.1%, off the December figure of 5.2%, which was the highest rate in 17 months.
In a sustained improvement in economic conditions, retail inflation in February eased as food prices softened, while industrial production soared in January.
"The sharp dip in retail inflation in February has reinforced our expectation that the MPC would keep the repo rate unchanged in the upcoming policy review in April, which may prompt a further easing of bond yields in the immediate term", said Aditi Nayar, Principal Economist, ICRA, warning that inflation may see a spurt in the coming months.
Inflation in vegetables was 17.57% last month, down from 26.97% in January, and for fruits it was 4.80% (as against 6.24%). Food price inflation was at 4.7% in January.
The country's industrial production, however, rose by 7.5% in January, backed by growth in manufacturing, consumer and capital goods sectors.
Experts suggest the consistent growth in the industrial production could boost the overall economic growth in the fourth quarter. While the manufacturing sector grew 8.7% in January, compared with 2.5% in the same month a year ago, capital goods grew 14.6% and consumer non-durables 10.5% in the month under review.
"The General Index for the month of January 2018 stands at 132.3, which is 7.5% higher as compared to the level in the month of January 2017", a Central Statistics Office (CSO) release said.
Consumer non-durable goods, which are mainly fast moving consumer goods, too showed an increase of 10.5% as against a growth of 9.6%. This looks like an early sign of industrial revival.
As per use-based classification, the growth rates in January 2018 over January 2017 are 5.8% in primary goods, 4.9% in intermediate goods and 6.8% in Infrastructure/ Construction Goods.
Mining activity's growth further plummeted, growing 0.1 percent in January following December's trend at 1.2 percent, as compared with a robust growth of almost 8.6 percent a year ago.
As many as 16 of the 23 industry groups registered positive growth during the month when compared to the corresponding period in 2017. What is encouraging is that the capital goods sector has posted robust growth during the month backed by new orders and improved demand. "Looking ahead, we expect that industrial performance would be on a clear up slope with both consumption and investment picking up pace during the year".