The industrial production also expanded by 7.5 per cent in January 2018 compared to 3.5 per cent in the same month a year ago.
The inflation on the basis of Consumer price index (CPI) and Wholesale Price Index (WPI) was at 5.21% and 3.58%, respectively, in December 2017.
The country's industrial production, however, rose by 7.5% in January, backed by growth in manufacturing, consumer and capital goods sectors.
India's retail inflation fell to 4.4 percent in February as prices of vegetables and other food and beverages softened, data released by Central Statistics Office on Monday showed.
In January, retail inflation had declined to 5.07% while the inflation based on wholesale prices had eased to a six-month low of 2.84%.
"This easing appears to have come largely on the back of a slowdown in the food price inflation on account of one-off seasonal factors", Richa Gupta, senior economist and senior director, Deloitte India said.
RBI in this policy stated that the December bi-monthly resolution projected inflation in the range of 4.3-4.7% in the second half of 2017-18, including the impact of increase in HRA.
The January IIP was also boosted by a higher offtake of consumer and capital goods. However, the mining sector saw a flat growth of 0.1 per cent compared to 8.6 per cent a year ago.
In January, manufacturing grew by a robust 8.7 per cent, followed by 7.6 per cent increase in electricity generation. In terms of industries, 16 out of 23 industry groups in the manufacturing sector showed positive growth during January, 2018. While the manufacturing sector grew 8.7% in January, compared with 2.5% in the same month previous year, capital goods grew 14.6% and consumer non-durables 10.5% in the month under review.
Commenting on the IIP numbers, industry chamber Assocham described these as signs of "an underlying pick-up in the growth trajectory".
Some consumer prices that skyrocketed in January probably returned to Earth in February, indicating fears of runaway US inflation that jarred financial markets were overblown. "However, the momentum of the recovery needs to be sustained through effective implementation of the structural and infra related reforms".