New Delhi: Food inflation fell sharply to a near four-year low of 1.81 percent as on December 10 as prices of certain essential items like onion and potato dropped steeply.

Experts said that if the low numbers continue for some time it may help the RBI to go for interest rate cuts in its next monetary policy review on January 24. Food inflation was 4.35 per cent in the previous week ended December 3.

The latest number is the lowest rate of food inflation since the week ended February 9, 2008, when it stood at 2.26 percent.

According to data released on Thursday, onion became cheaper by 49.38 per cent year-on-year during the week under review, while potato prices were down by 34.39 per cent. Prices of wheat also fell by 4.21 percent.

Overall, vegetables became cheaper by 26.37 per cent.

Experts said the moderation in food inflation numbers, which was in double-digit in early November, is on account of good kharif harvest as well as a high base, suggested by the
over 13 per cent rate of price rise of food items in the corresponding period of 2010.

"There is the strong base effect, on top of a normal monsoon and good harvest. I believe the moderate rate will continue for at least a month or two and we can expect its impact in the December headling inflation numbers also," Crisil Chief Economist D K Joshi said.

"In such a scenario, the RBI may go for a rate cut in the first quarter of 2012," he added. The central bank in its med-quarter review on December 16 had kept the key rates unchanged.

While inflation in vegetables and wheat segments eased during the reporting week, prices of protein-rich items such as egg, milk and pulses have continued to remain high.

Pulses became costlier by 14.22 per cent during the week under review, while milk grew dearer by 11.19 per cent and eggs, meat and fish by 9.25 per cent.

"Both the high base and good production is responsible for moderation in food inflation numbers. However, it is too early to say if this will sustain. We should wait and watch till at least early February before coming to a firm conclusion," Deloitte Haskin & Sells Director Anis Chakravarty said.

He said the RBI is likely to closely watch the situation for some time before going ahead with rate cuts.

Inflation in the overall primary articles category stood at 3.78 per cent during the week ended December 10, as against 5.48 per cent in the previous week.

Inflation in the non-food segment, which includes fibres and oilseeds, was recorded at 1.37 per cent during the week under review, as against 2.12 per cent in the week ended December 3.

Fuel and power inflation stood at 15.24 per cent during the week ended December 10, same as in the previous week.

Economic growth fell to a two-year low of 6.9 per cent in the second quarter, while industrial production entered negative zone in October and contracted by 5.1 percent.

At its Mid Quarter Policy Review last week, RBI put a pause to its rate hike and hinted that it may cut them in case inflation moderates.

Headline inflation, which also factors in manufactured items, besides food and fuel, has been above 9 per cent mark since December last year.

(Agencies)