Saturday, January 28, 2012

Food inflation remains in negative zone

Falling cost of vegetables like potatoes and onions kept food inflation in the negative zone for the fourth consecutive week at (-)1.03 percent as on 14th January.

Experts said that food inflation is likely to remain in the negative terrain for some more time and this could help the Reserve Bank go for rate cut in its next mid-quarterly review in March.

Food inflation, as measured by the wholesale price index (WPI), stood at over 17 percent in the corresponding week of the previous year. It was (-)0.41 percent in the previous week ended 7th January.

The maximum drop was witnessed in prices of onions, which became cheaper by 79.10 percent year-on-year, while potatoes became 22.46 percent less expensive.

Overall, vegetables became 47.06 percent cheaper, while wheat prices fell by 3.37 percent.

"Food inflation may remain in the negative zone for some more time. The RBI has already cut the Cash Reserve Ratio (CRR) and the continuing moderation in inflation may prompt it to go for interest rate cuts in next mid-quarterly review," Crisil Chief Economist D K Joshi said.

He also said that the fall in food inflation numbers will help keep headline inflation at moderate levels.

General inflation stood at a two-year low of 7.47 percent in December, mainly on account of falling food prices.

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 CRR by half-a-percentage point to 5.5 percent but kept the short-term lending rate unchanged.

The government, meanwhile, has decided to stop the practice of releasing the food inflation data on weekly basis.

"Cabinet decisions need some time to be implemented," government spokeswoman Neelam Kapur said on Friday.

The Commerce and Industry ministry, however, will continue releasing the monthly headline or overall inflation data, which also contains the break-up for all segments including food, non-food, fuel and manufactured items.

While vegetables and wheat prices saw a fall, rates of other items continued to go up. Year-on-year, prices of pulses were up 12.77 percent, milk - 12.25 percent and eggs, meat and fish - 20.33 percent for the week under review.

Experts attributed the decline in food inflation to the "high base" of the previous year and to good kharif output. Food inflation stood at over 17 percent in the same period last year.

"The price levels of non-vegetarian protein items have displayed a rise in the recent weeks reflecting the seasonal demand patterns," said ICRA Economist Aditi Nayar.

She also said: "Although prices of such items are likely to ease somewhat subsequent to the winter months, the related inflation rate is expected to remain elevated given an unlikely short-term supply response."

Inflation in the overall primary articles category stood at 1.89 percent during the week ended 14th January, as against 2.47 percent in the previous week, as per Friday’s data.

Inflation in the non-food segment, which includes fibres and oilseeds, was recorded at 0.56 percent compared to 1.84 percent in the previous week.

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

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

RBI had hiked lending 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 percent, said the revision in domestic-administered prices would add to inflationary pressure. RBI will announce its next mid-quarterly review on 15th March.

This decision to do away with the weekly inflation data was arrived at as the figures were not portraying the "holistic" picture of the price situation, according to officials.

"Doing away with the weekly inflation data would mean that the volatility associated with week-on-week variations would cease to cause concern. Globally also it is the norm to give inflation numbers on a monthly basis," Crisil's Joshi said.

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