(Bloomberg) -- India’s inflation stayed below the central bank’s target and factory output slowed, boosting pressure on Governor Raghuram Rajan to cut interest rates even as he grapples with new data suggesting the economy is expanding as fast as China’s.

Consumer prices rose 5.11 percent in January from a year earlier, the Statistics Ministry said in a statement on Thursday. It changed the index’s base price and weights, which revised the December gain to 4.28 percent from 5 percent.

Industrial production rose 1.7 percent in December compared with a revised 3.9 percent gain the previous month and 1.8 percent median estimate in a Bloomberg survey of 35 economists.

Rajan left rates unchanged last week after an unscheduled cut in January, signaling he wants to see Prime Minister Narendra Modi’s first full-year budget on Feb. 28. While falling oil prices will help keep inflation around Rajan’s target of 6 percent by next January, revised gross domestic product data showing much faster growth make his rate calls tougher.

“While we await details to assess how much disinflation is yet in store, today’s data confirms there’s still headroom for Rajan to continue with the easing cycle,” said Shubhada Rao, an economist at Yes Bank Ltd. in Mumbai. “We continue to expect 50 basis points in cuts to the repo rate in 2015.”

The rupee erased losses offshore after the inflation data. India last month changed its method for measuring GDP, which revised the previous fiscal year’s growth to 6.9 percent from a near decade-low of 4.7 percent. It forecasts a 7.4 percent expansion in the year through March 31. That has confused economists, including Rajan, who kept the benchmark repurchase rate at 7.75 percent.

David Fuller's view

Changes in the calculation of GDP and inflation are temporarily disorienting, and I have not yet seen details of these new reports.  Neither has central bank Governor Raghuram Rajan, judging from the paragraph immediately above.  Nevertheless, given a stable Rupee since Rajan joined the central bank, plus the oil price drop, I assume that only a poor monsoon could prevent India’s inflation rate from declining with the current global trend.  That will provide a favourable tailwind for India’s stock market which has been consolidating earlier gains. 

Last week’s New Delhi election was a wake-up call for the BJP Party.  It appears to have been mainly due to some tactical errors by the RSS-BJP Poll Committee, but widespread reports and photographs of Modi’s sartorial splendour when meeting with Barack Obama in India just before the poll did not go down well with New Delhi’s numerous poor citizens.  They favour Modi’s humble Hindu ‘monk’, man of the people appearance.  Fair enough, but Modi’s smart, sophisticated international look will be appropriate during his political and business travels to other countries.