Food inflation in India plunged into the negative territory in the fourth week of December mainly due to base effect, data released by the Government showed on Thursday. Fuel inflation edged up though.
The sharp drop in food inflation over the past few weeks is likely to provide some much-needed breather to consumers and the policymakers alike.
However, it will be a while before the RBI starts considering a cut in its policy rates. For that to happen, the headline WPI print should also fall sharply.
Food inflation shrank by 3.36% in the week ended December 24 after rising by 0.42% in the preceding week, the Commerce & Industry Ministry said today. Food inflation stood at 20.84% in the corresponding week last year.
Inflation in the Primary Articles group fell to 0.1% in the week under review, from 2.70% in the week ended December 17, according to the Commerce Ministry statement. It was at 22.68% in the year-ago period.
Inflation in the Fuel & Power group stood at 14.60% in the week ended December 24 versus 14.37% in the previous week, the Government data showed. It was at 11.63% in the comparable week of the previous year.
Headline WPI inflation could ease below 7% by the end of March, C.Rangarajan, chairman of the Prime Minister's Economic Advisory Council said today.
Rangarajan also said that India's economic growth in the current fiscal year (FY12) could be slightly above 7%.
Deputy governor of the RBI, Subir Gokarn said today that stubbornly high inflation may prevent the central bank from reversing the hawkish monetary policy.
He added that a weaker rupee and elevated crude oil prices are further undermining policy maneuvering for the RBI.
“The monetary cycle has peaked,” Gokarn said at a conference in Singapore today. “That does not necessarily say that a quick reversal is in order because inflation risks are still visible, still high.”
The RBI is very concerned about the impact of rupee depreciation on inflation, Gokarn said today.
The rupee was Asia’s worst performing currency last year, after sliding more than 14%.
High oil prices are limiting scope for Asian officials to ease monetary policy, Gokarn said.
India's headline WPI inflation rate fell to a one-year low of 9.11% in November from 9.73% the previous month. Food inflation eased for a ninth straight week to its lowest in nearly six years in mid-December.
The RBI, which has raised its interest rates 13 times since March 2010, left its key lending rate, the repo rate, steady at 8.50% last month.
The central bank policy makers next meet on January 24 to take a call on interest rates.
Meanwhile, inflation in the Non-Food Articles space rose to 0.85% in the week under review from 0.28% in the previous week, the Government data showed. It was at 25.94% in the same period a year earlier.
Inflation in the Minerals group stood at 23% in the week ended December 24, unchanged from the week ended December 17, according to the Commerce Ministry data. Inflation in this group stood at 30.58% in the year-ago period.
On an annual basis, onions turned cheaper by ~73.7% in the week under consideration, and vegetable prices dropped ~50.2% on an annual basis.
Fruits turned costlier by ~10.9% year over year, while Milk prices increased ~9.5% and Egg, Meat & Fish became pricey by ~13.8% compared to the year-ago period.
Potato prices were down ~34% on an annual basis while Cereal prices went up by ~2% year over year. Prices of Pulses jumped by ~13.85%. Annual inflation in Rice stood at ~1.5% while Wheat prices fell ~3.4%.
In the Non-Food category, prices of Fibres fell by ~8.5% year-on-year while that of Oilseeds rose by ~11.5% from a year ago.
In Fuel category, LPG prices are up ~15%, petrol by ~17.1% and diesel by ~9.2%.
Compared to the previous week, prices of Potato and Vegetables were down 6.1% and ~2.5%, respectively.