Retail inflation spiked to an eight-month high of 3.18 per cent in June on the back of higher food prices, while factory output fell to 3.1 per cent in May, which could prompt the RBI to ease key interest rates at its next policy review in August.

The data showed that retail inflation increased marginally to 3.18 per cent in June compared with 3.05 per cent in the previous month and 4.92 per cent in June 2018.

Retail inflation has been showing a rising trend since January this year when it stood at 1.97 per cent. However, it is still below the central bank’s medium-term target of 4 per cent for the eleventh straight month.

Meanwhile, industrial production grew 3.1 per cent in May, mainly on account of improvement in power generation. The Index of Industrial Production (IIP) expanded 3.8 per cent in May 2018. The expansion in power generation stood at 7.4 per cent compared with 4.2 per cent a year ago.

“The sub-3 per cent growth in primary, capital and intermediate goods as well as the contraction in consumer durables are signs of concern. Evolving trends do not bode well for the pace of GDP growth in Q1 FY20, which in conjunction with range-bound retail inflation, suggest a substantial likelihood that another rate cut is in the offing,” Aditi Nayar, principal economist with rating agency Icra, said.

Output of primary goods rose 2.5 per cent compared with 5.2 per cent in April, while that of capital goods rose 0.8 per cent against a 2.5 per cent fall in the previous month. Consumer durables output fell 0.1 per cent against a 2.4 per cent growth in April.