Jan inflation at 2-year low of 6.55 per cent

Confirming to street estimates and backed by a drop in food prices, India’s headline inflation in January eased to 6.55 per cent from a high of 7.47 per cent a month earlier.

Inflation, as measured by the Wholesale Price Index (WPI), stood at 7.47 per cent in December 2011. It was 9.47 per cent in January last year.

The latest numbers are the lowest since November, 2009 when the inflation was 4.73 per cent.

As per the data, food inflation was (-) 0.52 per cent in January against 0.74 per cent in December. Food inflation fell into the negative zone on account of cheaper vegetables, like potato and onion whose prices fell by 23.15 per cent and 75.57 per cent, respectively, on annual basis.

The fall in inflation to a two-year low also raised Finance Minister Pranab Mukherjee’s hope it would stabilise around 6 per cent by March end. He, however, said that inflation at the current level was not acceptable. “I now expect that the March-end 2012 inflation will be closer to 6 per cent,” Mukherjee told reporters here.

Analysts said the fall in inflation raises hope of a decent economic growth and ease in price pressure on common man in coming times.

The annual inflation fell on the back of  cooling food inflation which moved to -0.52 per cent from 0.74 per cent in December.

However, prices of protein-rich food items such as eggs, fish and meat, milk and pulses remained high, suggesting that food inflation remained a potential pressure point.

However, prices of manufactured items, which have a weight of around 65 per cent in the WPI basket, continued to be a cause for concern. Manufactured inflation stood at 6.49 per cent year-on-year in January, as against 7.41 per cent in the previous month.

Fuel prices rose 14.21 per cent from a year earlier, compared with an annual rise of 14.91 per cent in December.

The steady fuel inflation pointed towards political considerations that have forced the government to delay an adjustment in petroleum and coal prices. Policymakers said lowering of inflation also made a case forthe Reserve Bank of India to cut rates.

Last month, the RBI signaled readiness to lowering rates if inflation eased further. It has, however, cited risks to inflation from global crude oil prices and the weak rupee, as well as India's growing fiscal deficit. The impact of Europe’s debt crisis has also added to risks, with a trade deficit expected to rise to $160 billion in 2011-12, threatening renewed pressure on rupee.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said: I hope that we will be able to keep inflation under control in coming months. Inflation for November 2011 has been revised upwards to 9.46 per cent from provisional estimate of 9.11 per cent.