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Cheaper onions, potatoes pull down food inflation

-PTI

Falling prices of vegetables such as potatoes and onions pushed down the food price index by 0.42 per cent in the week ended January 7, over the same period of the previous year.

However, experts feel that the decline in prices of food articles will not be enough to prompt the Reserve Bank of India to cut key interest rates at its forthcoming monetary policy review on January 24.

Food inflation as measured by the wholesale price index (WPI) was over 16 per cent in the corresponding week of the previous year. It was (-) 2.90 per cent in the previous week, ended December 31, 2011.

Onions were cheaper by 75.42 per cent year-on-year during the week under review, and potato prices fell by 23.84 per cent over the same period. Overall, vegetables became 45.81 per cent cheaper, while wheat prices fell by 3.57 per cent.

The decline in food prices since the first week of November has been substantial, with the rate of price rise plummeting into the negative zone from double digits.

“Food inflation may remain in the negative zone for another two weeks before turning positive to low single-digit,” Crisil Chief Economist D K Joshi said. However, the time is not yet right for the RBI to start loosening the monetary policy, he said.

“While food inflation has moderated, there are major components like manufactured products where prices continue to rise at a high level. We believe the RBI will wait for some more time before starting to cut rates,” Joshi said.

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

After raising interest rates by 375 basis points since March 2010, the RBI took a pause on its hawkish stance in December.

However, prices of other food items continued to go up. Prices of pulses were up 14.27 per cent, milk 11.48 per cent, and eggs, meat and fish 19.64 per cent year-on-year during 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 16 per cent in the same period last year.

“Once the impact of the favourable base effect wears off in February, 2012, food inflation is expected to rise to around 6-6.5 per cent in March, 2012,” said ICRA Economist Aditi Nayar.

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