Retail inflation in December rose for the first time in fivto 5 per cent after hitting a record low of 4.4 per cent in the previous month. Food prices led to the spike in consumer inflation. However, the data was better than analysts' expectations.
A Reuters poll of 25 analysts had expected retail inflation in December at 5.4 per cent.
However, in some positive news for the economy industrial output bounced back in November with a growth of 3.8 per cent compared to the same period last year, led by a rebound in the capital goods sector. October factory growth had contracted to 4.2 per cent.
Analysts polled by Reuters had expected year-on-year factory growth of 2.2 per cent in November.
Wholesale price inflation, which was flat in November, is expected to have picked up to 0.6 per cent last month, according to the Reuters poll. The WPI data is due to be released on Wednesday.
Inflation has rapidly cooled in India following a spectacular drop in global crude oil prices, softer food costs and favourable base effects from previous reporting periods.
The RBI has targeted 6 per cent inflation by January 2016 and indicated that if the target is met it would shift to a 4 per cent goal over the longer term.
The central bank will hold its next policy review in early February, while Finance Minister Arun Jaitley is due to present the Narendra Modi government's first full-year Budget later that month.
(With Reuters inputs)