Food inflation dips to -3.36 percent; RBI may cut rates
India's annual food inflation slipped into the negative for the first time in at least six years, official data showed Thursday as prices of vegetables, especially onions and potatoes, fell sharply, giving relief to people and policy makers.
The sharp drop in food inflation and easing in overall inflationary pressure may prompt the Reserve Bank of India (RBI) to cut policy rates in its next monetary policy review later this month.
The annual food inflation fell to -3.36 percent for the week ended Dec 24, as compared to 0.42 percent in the previous week and 20.84 percent during the corresponding week of last year.
"There has been substantial improvement. Food inflation has turned negative for the first time in recent memory," Finance Minister Pranab Mukherjee told reporters, reacting on the weekly data.
Food inflation during the week under review was the lowest since April 2006. After remaining near double-digit for almost two years, food inflation has dropped sharply in the last two months. It has dipped for the ninth consecutive week.
It came down to single-digit in the second week of November and has slid consistently since then. It was recorded at 10.63 percent for the week ended Nov 5. The sharp decline in food inflation is partly because of the base effect and also improved supply of seasonal crops. During the corresponding weeks of last year, annual inflation was almost near 20 percent.
The data released by the ministry of commerce and industry showed the prices of vegetables were less than half during the week when compared to the prices in the corresponding week of last year.
Onions became cheaper by 73.74 percent while the price of potatoes dropped by 34.01 percent year-on-year. Inflation in overall primary articles, which has 20.12 percent weightage in the wholesale price index, also dropped sharply to 0.10 percent for the week ended Dec 24 as compared to 2.70 percent in the previous week and 22.68 percent in the corresponding week of last year.
However, fuel and power inflation rose marginally to 14.60 percent during the week under review as compared to 14.37 percent in the previous week. Economists said the recent drop in food inflation and easing in overall inflationary pressure may prompt the central bank to cut interest rates.
"The environment appears to be in favour of the Reserve Bank of India reversing its monetary policy stance," said C. Rangarajan, chairman of the Prime Minister's economic advisory council.
The RBI last month kept policy rates unchanged after hiking the key rates 13 times since the beginning of 2010. Rangarajan said food inflation was likely to remain near zero or in the negative territory till March.
"This was expected as the seasonal trend has caused vegetable prices to come down in the recent months. I see food inflation negative in January and negative or close to zero by March."
The fall in food inflation has raised hopes of a decline in headline inflation based on the wholesale price index which, according to the latest available data, was recorded at 9.11 percent in November.
Rangarajan said the overall inflation would fall below 7 percent by the end of the current financial year.
The following are the yearly rise and fall in prices in the week under review of some main commodities that form the sub-index for food articles:
Onions: (-) 73.74 percent
Vegetables: (-) 50.22 percent
Fruits: 10.87 percent
Potatoes: (-) 34.01 percent
Eggs, meat, fish: 13.82 percent
Cereals: 1.97 percent
Rice: 1.46 percent
Wheat: (-) 3.41 percent
Pulses: 13.85 percent
