Food inflation in negative zone for fourth consecutive week

Food inflation remained in the negative zone for the fourth week in a row, at (-)1.03% for the week ended January 14, on account of cheaper vegetables.

Food inflation, as measured by the Wholesale Price Index (WPI), was at (-)0.42% in the previous week. It was above 17%  in the corresponding week of 2011.

According to the official data released today, onion prices fell steeply by 79.10%, year-on-year, for the week under review, while potato prices were down 22.46%. Prices of wheat also fell by 3.37%.

Overall, vegetables were 47.06% cheaper during the week under review, from the same period last year.

However, other food products, led by protein-based items, became more expensive on an annual basis.

Pulses prices were 12.77% higher, while milk grew dearer by 12.25%. Eggs, meat and fish prices were up 20.33%  year-on-year.

Fruits also became 5.17% more expensive on an annual basis, while cereal prices were up 2.71%.

Inflation in the overall primary articles category stood at 1.89% for the week ended January 14, as against 2.47%  in the revious week. Primary articles have over 20%  weight in the wholesale price index.

Experts feel that the decline in food inflation, along with moderation in headline or overall inflation in December, will be a major incentive for the Reserve Bank to look at the option of cutting key interest rates in the near future.

At its third quarterly monetary policy review earlier this week, the apex bank had injected Rs 32,000 crore into the system by lowering the Cash Reserve Ratio (CRR) by half-a-percentage point to 5.5%  but kept the short-term lending rate unchanged.

Inflation in the non-food primary articles segment, which includes fibres and oilseeds, was recorded at 0.56%  for the week ended January 14, against 1.84%  in the previous week.

Fuel and power inflation stood at 14.45% , same as in the previous week.

Headline inflation, which also factors in manufactured items, fell to a two-month low of 7.47% in December.

According to experts, the moderation in both overall inflation and food inflation will allow the RBI to look at the option of reversing its tight monetary policy in near future.

In its review, RBI had however said inflation remains a concern in view of volatile crude prices in international markets and widening fiscal deficit.

Attributing the decline in food inflation mainly to seasonal factors, the central bank said the impact of good vegetable output will remain limited in the absence of effective measures to address supply-side bottlenecks.

RBI had hiked interest rates 13 times between March 2010 and October 2011 to curb demand and tame inflation.

The apex bank, which has pegged the year-end inflation at 7%, said the revision in domestic-administered prices would add to inflationary pressures.