Consumer Inflation At 5-Month High, Factory Output Shrinks

Higher fuel costs drove up headline inflation to its highest level in five months in March, data released on Wednesday showed, vindicating a central bank decision last week to keep its policy rate on hold amid concern about prices.

Consumer prices rose by an annual 3.81 percent last month, their fastest pace since October 2016, compared with February's 3.65 percent increase, the Ministry of Statistics data showed.

The rise, however, was slower than the 3.98 percent forecast by economists in a Reuters' poll.

Retail fuel inflation accelerated to 5.56 percent in March from 3.90 percent a month ago. Food prices rose 1.93 percent on the year, slower than a 2.01 percent annual increase a month earlier.

Worries about a possible flare-up in food prices, should India experience below-average monsoon rains this year, forced the Reserve Bank of India (RBI) to keep its key lending rate on hold for a third straight meeting last week.

But more surprisingly in a subtle shift to a tightening bias, the central bank raised the reverse repo rate - what banks get for deposits at the RBI - by 25 basis points, to help mop up excess liquidity in the banking system.

Meanwhile, factory output in the month of February contracted to 1.2 per cent, as against growth of 2.7 per cent in January.