Inflation skids to 2-year low

Crashing food prices see the index dip to 7.47 per cent

Crashing food prices in recent weeks helped India’s headline inflation ease to a two-year low of 7.47 per cent in December, but only a marginal decline in manufactured inflation left the government and policymakers worried and may also hold the central bank from lowering interest rates in this month’s policy review.

Reacting to the lowered inflation number, Finance Minister Pranab Mukherjee expressed hope that WPI inflation would come down to 6-7 per cent by March end, but said only a marginal decline in manufacturing inflation was still a cause of concern.

“The manufactured inflation and inflation in the power group of items have also declined though only marginally, therefore, continued to be a cause of concern,” Mukherjee said. The WPI inflation came down sharply in December, easing from 9.11 per cent in the previous month on the back of cheaper onion, potato and wheat prices during December.

Official data showed vegetables were cheaper by 34.18 per cent and wheat by 3.81 per cent on an annual basis. Potato and onion prices also fell by 35.45 per cent and 60.45 per cent year-on-year during December.

Prices of food items eased to 0.74 per in December from 8.54 per cent in the previous month. The Manufacturing index, however, went up since November. Manufacturing inflation was at 7.41 per cent compared with 7.7 per cent in the previous month.

Inflation in the fuel and power segment stood at 14.91 per cent on an annual basis in December, as against 15.48 per cent in the previous month.

The depreciation in the rupee vis-a-vis dollar  has sharply pushed up fuel inflation as India imports nearly 80 per cent of its crude requirements for which it has to pay in dollars.

Analysts said, core inflation, which excludes food and fuel prices, still remained close to 8 per cent suggesting the Reserve Bank of India may not go in for a reversal in interest rate cycle as early as this month.

Although the Central bank left its key lending rate unchanged at its December policy review, it has risen it 13 times since March 2010 lifting repo rate by 375 basis points and reverse repo by 425 bps. The bank will next meet no January 24 to review monetary policy.

Inflation in overall primary articles stood at 3.07 per cent in December, compared to 8.53 per cent in November.