New Delhi: Food inflation fell to its lowest level in almost six years at 0.42 percent for the week ended December 17, with a sharp decline in prices of essential items like onions and potatoes likely to prompt the RBI to cut interest rates at its policy review next month. With food inflation declining to below 1 percent, the lowest since April, 2006, Finance Minister Pranab Mukherjee hoped that headline inflation would drop to 6 percent by March-end.
"If this trend continues, then you will have year-end (headline) inflation around 6 percent (plus/minus)... But it cannot be lower than 6 percent, because inflationary pressure was higher in weeks before," he told reporters.
Food items have a 14 percent share in the overall Wholesale Price Index (WPI) basket.
According to data released on day, onions grew cheaper by 59.04 percent year-on-year during the week under review, while potato prices were down by 33.76 percent. Prices of wheat also fell by 3.30 percent.
Overall, vegetables became cheaper by 36.02 percent. Food inflation was in double digits in early November. It stood at 1.81 percent in the previous week ended December 10.
Experts attributed the fall to a good kharif harvest as well as a high base.
"This is a base affect and the good kharif harvest has also contributed to moderation. We expect the prices to remain low for the next few weeks and this may help the RBI to go for rate cuts in the near future," Crisil Chief Economist D K Joshi said.
While suggesting that food inflation may go into the negative zone by December-end, Joshi, however, cautioned that headline inflation is likely to remain high due to elevated levels of price rise in manufactured items.
Manufactured inflation, which forms over 65 percent of the WPI basket, is hovering around 8 percent.
While inflation in the vegetable and wheat segments eased during the reporting week, prices of protein-rich items such as eggs, milk and pulses have continued to remain high.
Pulses grew costlier by 14.07 percent during the week under review, while milk grew dearer by 11.30 percent and eggs, meat and fish by 11.56 percent.
"The continued decline in vegetable prices subsequent to the harvest has resulted in a substantial easing of the food price index, despite prices of cereals and pulses remaining largely steady over this period. Additionally, the base effect has aided in the sharp decline in the pace of food inflation," ICRA Economist Aditi Nayar said.
Inflation in the overall primary articles category stood at 2.70 percent during the week ended December 17, as against 3.78 percent in the previous week.
Inflation in the non-food segment, which includes fibres and oilseeds, was recorded at 0.28 percent during the week under review, as against 1.37 percent in the week ended December 3.
Fuel and power inflation stood at 14.37 percent during the week ended December 17, as against 15.24 percent in the previous week.
Headline inflation, which factors in manufactured items, besides food and fuel, has been above 9 percent-mark since December last year. It stood at 9.11 percent in December and the RBI had projected it to fall to 7 percent by March, 2012.
Economic growth fell to a two-year low of 6.9 percent in the second quarter, while industrial production entered the negative zone in October and contracted by 5.1 percent. India Inc has blamed high interest rates, which have increased the cost of borrowing, for hindering fresh investment and leading to industrial slowdown.
At its Mid-Quarter Policy Review earlier this month, the RBI took a pause on its rate hike strategy and hinted that it may cut them in case inflation moderates further.
New Delhi: Food inflation fell to its lowest level in almost six years at 0.42 percent for the week ended December 17, with a sharp decline in prices of essential items like onions and potatoes likely to prompt the RBI to cut interest rates at its policy review next month.
With food inflation declining to below 1 percent, the lowest since April, 2006, Finance Minister Pranab Mukherjee hoped that headline inflation would drop to 6 percent by March-end.