Food inflation in negative zone for fourth consecutive week

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Food inflation remained in the negative zone for the fourth week in a row, at (-)1.03 per cent 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 per cent in the previous week. It was above 17 per cent in the corresponding week of 2011.

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

Overall, vegetables were 47.06 per cent 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 per cent higher, while milk grew dearer by 12.25 per cent. Eggs, meat and fish prices were up 20.33 per cent year-on-year.

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

Inflation in the overall primary articles category stood at 1.89 per cent for the week ended January 14, as against 2.47 per cent in the previous week. Primary articles have over 20 per cent 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 per cent 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 per cent for the week ended January 14, against 1.84 per cent in the previous week.

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

Headline inflation, which also factors in manufactured items, fell to a two-month low of 7.47 per cent 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 per cent, said the revision in domestic-administered prices would add to inflationary pressures.