Food inflation falls to 0.42%, RBI may cut rates next month

New Delhi, Dec 29: Food inflation fell to its lowest level in almost six years at 0.42 per cent for the week ended December 17, with a sharp decline in prices of essential items like onions and potatoes likely to prompt the RBI to cut interest rates at its policy review next month.

With food inflation declining to below 1 per cent, the lowest since April, 2006, Finance Minister Pranab Mukherjee hoped that headline inflation would drop to 6 per cent by March-end.

“If this trend continues, then you will have year-end (headline) inflation around 6 per cent (plus/minus)… But it can not be lower than 6 per cent, because inflationary pressure was higher in weeks before,” he told reporters.

Food items have a 14 per cent share in the overall Wholesale Price Index (WPI) basket.

According to data released today, onions grew cheaper by 59.04 per cent year-on-year during the week under review, while potato prices were down by 33.76 per cent. Prices of wheat also fell by 3.30 per cent.

Overall, vegetables became cheaper by 36.02 per cent.

Food inflation was in double digits in early November. It stood at 1.81 per cent in the previous week ended December 10.

Experts attributed the fall to a good kharif harvest as well as a high base.

“This is a base affect and the good kharif harvest has also contributed to moderation. We expect the prices to remain low for the next few weeks and this may help the RBI to go for rate cuts in the near future,” Crisil Chief Economist D K Joshi said. MORE