Consumer Inflation At 2.05% In January, Lowest Since June 2017

Meanwhile, the country's industrial output in December rose 2.4 percent from a year earlier, slightly higher than forecast, government data showed on Tuesday.

The Consumer Price Index inflation rate for rural areas stood at 1.29%, while it was 1.50% in December 2018.

Manufacturing output, which accounts for 77.63 per cent of the index, grew at 2.7 per cent in December as against 8.7 per cent a year ago but was higher than contraction of 0.6 per cent in the previous month.

Those differences may disappear as slowing economic activity is set to drag core inflation down and also as the pass through impact from food and fuel prices fades. Cumulatively, for April-December 2018-19, industrial output grew at 4.6 per cent against 3.7 per cent in the same period of the previous financial year. Growth in the mining sector declined 1%.

Economists in a Reuters poll predicted retail inflation would edge up to 2.48 percent in January from the downward revised December figure of 2.11 percent. The RBI, which in its sixth bi-monthly monetary policy statement on February 7 cut policy rate by 25 basis points, had revised down its inflation projections citing low food inflation due to excess supply conditions domestically as well as internationally and larger than anticipated moderation in fuel inflation.

The retail inflation number was much lower than the market expectations, said Tushar Arora, a senior economist at HDFC Bank.

Consumer inflation had stood at 1.46 per cent in June 2017.

About a third of the fall in food prices is structural and could persist for an extended period of time, said Prachi Mishra, chief India economist at Goldman Sachs in an interview with BloombergQuint.

Shaktikanta Das, the RBI's new governor, voted for a cut despite only weeks earlier acknowledging the challenges posed by the divergent paths taken by core and food inflation. The central bank also changed its policy stance to "neutral" from "calibrated tightening", a shift that allows it to act either way on the key rates.

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