Easing food prices pull down inflation to 9-mth low of 4.68%

For the first time in nine months, inflation slipped below the psychological mark of 5 per cent in February on easing prices of onion and potato, creating headroom for RBI to cut interest rates in the monetary policy review on April 1 to boost sagging economic growth.

Inflation based on movement in the Wholesale Price Index (WPI) came down to 4.68 per cent in February, from 7.28 per cent a year ago. It was 5.05 per cent in January 2014.

"Need to watch inflation carefully... Happy that overall inflation is coming down," Finance Minister P Chidambaram said while expressing satisfaction over improvement in the price situation ahead of the general elections.

Food inflation, which has been a major cause of concern for the government, dropped to 8.12 per cent in February, compared to 8.8 per cent in January as the rate of price rise slowed in almost all items, except fruits, rice and milk.

Inflation, which is on decline since December, was 5.05 per cent in January. Prior to February, the lowest WPI was recorded in May 2013 at 4.58 per cent. In June, it had inched up again to 5.16 per cent.

As per the data released today, rate of price rise for onions - on annual basis - contracted 20.06 per cent in February. Similarly rate of price rise in potato slowed to 8.36 per cent.
The overall inflation in the vegetable basket dropped to 3.99 per cent, from 16.6 per cent in January. There was also a drop in prices of pulses, cereals and wheat.

However, fruits, milk and other protein-rich items like egg, fish and meat became costlier in February compared to the previous month.

Inflation in the manufactured items, like sugar and edible items, was 2.76 same as in January.

Commenting on the fall in WPI inflation, Deputy Chairman of Planning Commission Montek Singh Ahluwalia said: "This is clearly a good news. It shows that this area (price situation) which was not an area that we were comfortable, is now getting into more comfortable range."

Meanwhile, December inflation has been revised upwards to 6.4 per cent, from 6.16 per cent estimated earlier.

The Reserve Bank of India, which has maintained a hawkish interest rate regime to tame inflation, is scheduled to announce the next monetary policy on April 1. Industry has been demanding a cut in interest rates to boost economic growth, which has slowed to a decade-low level.

Industry body PHDCCI said the decline in WPI inflation is "inspiring and a positive sign", and also an indication of price stability going forward.

"Since the industry growth is in its low gear at this juncture, the Chamber expects a cut in repo rate in the coming times," its president Sharad Jaipuria said.

Global credit rating agency Fitch said that in the longer run, structurally lower inflation would benefit growth by improving the investment environment.

"Inflation remains high compared with peers, although it came down in recent months due to easing food inflation, as pressures on vegetable prices in particular eased significantly," the agency said.

The retail inflation, based on Consumer Price Index and also factored in by RBI, fell to a 25-month low of 8.1 per cent in February.

On the possibility of RBI cutting interest rate in the next policy review, Chairman of Prime Minister's Economic Advisory Council (PMEAC) C Rangarajan said: "I think retail inflation at 8 per cent is still high rate. But I believe that if inflation moves down further it will give greater room to the monetary authority to cut interest rates."