At 8%, plunging food inflation brings back smiles in India

Saturday, 3 December 2011 00:00 -     - {{hitsCtrl.values.hits}}

NEW DELHI: India’s food inflation eased to a four-month low in the week to 19 November as vegetables, cereals and eggs turned cheaper. The decline in the reading for the fourth consecutive week came as a respite to the government struggling to recover from a string of recent bad tidings.

Data released by the commerce and industry ministry on Thursday showed the wholesale price index for food articles rose 8% year-on-year, as against 9.01% in the previous week. The moderation in the pace raised expectations in the government that it may finally succeed in taming the persistently high headline inflation.

“After the month of August, for the first time it (food inflation) has come down to 8% ...non food inflation is steadily declining,” Finance Minister Pranab Mukherjee said.

“If this trend continues, perhaps we may have the year-end inflation at 6%-7%. “Food inflation has over 14% weight in the Wholesale Price Index or WPI, which stood at 9.73% in October. Analysts expect the deceleration to continue until mid-January. A high statistical base effect of last year will also cushion the inflation rate.

“There are two reasons for the decline,” said Madan Sabhnavis, chief economist with ratings agency Care. “One is the movement of harvest produce and the other is a substantial cyclical base effect.”

Sabhnavis said the moderation in food inflation will bring down the overall inflation rate and provide some relief to the Reserve Bank of India which is likely to maintain key rates in its next monetary policy review.

Some other analysts said although the downtrend was an encouraging sign, price fluctuations in food items will continue. “Some volatility in the price levels for various food items is likely to persist in the coming weeks based on supply demand dynamics,” said Aditi Nayar, economist with ICRA.

During the week under review, prices of vegetables fell by 10.51% while those of cereals saw a marginal decline of 0.06%. Potatoes became cheaper by 4.51% and onions by 5.39%. Prices of eggs, meat & fish declined by 0.65%. The inflation rate for non-food articles stood at 2.94% compared with 26.93% during the corresponding period last year.

During the week, prices of nonfood articles increased by 1.14%. The inflation rate for primary articles, consisting of both food and non-food items, stood at 7.74% as against 14.32 % last year. Fuel index rose marginally to 15.53% from 15.49 % in the previous week.