Sharp moderation in food inflation to 39-month low of 6.6%

Food inflation witnessed a sharp moderation to a 39-month low of 6.60% during the week ended November 26 as prices of kitchen essentials like onions, potatoes and wheat declined, providing much-needed relief to the common man as well as the government.

This is the lowest rate of food inflation, as measured by the Wholesale Price Index (WPI), since August 9, 2008, when it stood at 6.19%. Food inflation stood at 8% in the previous week ended November 19.

Experts said the moderation in the rate of price rise of food items will have a sobering effect on the Reserve Bank, which is scheduled to conduct its next mid-quarterly credit policy review on December 16.

According to data released today, onions became cheaper by 39.20% year-on-year during the week under review, while potato prices were down by 15.75%. Prices of wheat also fell by 4.70%.

Overall, vegetables became cheaper by 1.25%, a big relief after double-digit inflation in vegetable prices during the months of September and October.

"Food inflation is expected to moderate further in December, 2011, particularly on account of the base effect," ICRA Economist Aditi Nayar said.

Food inflation was near 9% in the same period last year, signifying a high base.

"Notwithstanding the moderating economic growth impulses, we expect the RBI to keep the repo rate unchanged in the upcoming policy review, to continue to restrain inflationary expectations," Nayar said.

Experts attributed the decline in inflation to the good monsoon and plentiful kharif harvest.

"Farm output has been good and food inflation is expected to remain at a moderate rate for some time," Crisil Chief Economist DK Joshi said.

"Though we have to wait and see how the manufactured products inflation fares in November, the moderation in food inflation will at least ensure that the RBI maintains the interest rate at current levels," he added.

However, protein-based items continued to grow more expensive on an annual basis, as per the latest data.

Pulses became 13% costlier during the week under review, while milk grew dearer by 11.02% and eggs, meat and fish by 10.04%.

Fruits also became 10.72% more expensive on an annual basis, while cereal prices were up by 1.68%.

"There are structural factors behind the high inflation of protein-based items. While consumption of such products has increased, production has not kept pace with that," Joshi said.

Inflation in the overall primary articles category stood at 6.92% during the week ended November 26, as against 7.74% in the previous week.

Inflation in the non-food segment, which includes fibres, oilseeds and minerals, was recorded at 1.37% during the week under review, as against 2.14% in the week ended November 19.

Fuel and power inflation stood at 15.53% during the week ended November 26, the same as in the previous week.