Food inflation declines after 5-week ascent

Food inflation in India softened in the early part of January after spiking to nearly a two-year peak in late December, providing some sort of a relief to both policymakers and consumers alike.

However, it still remains at pretty elevated and may not be able to dissuade the RBI from increasing interest rates at its next policy meeting on January 25.



Annual rate of inflation in the sensitive Food Articles space decreased in the week ended January 1, data released by the Government showed on Thursday. This was the first decline in food inflation after rising for five consecutive weeks.

Inflation in the Food Articles group fell to 16.91% in the week ended January 1 from 18.32% in the preceding week, the Union Commerce & Industry said today. Inflation in the food articles space was at 19.65% in the year-ago period.

Inflation in the Primary Articles group also declined to 17.58% in the week under review from 20.20% in the week ended December 25. Inflation in the Primary Articles space was at 19.83% in the comparable period last year.

Inflation in the Fuel & Power group also inched lower in the week ended January 1 to 11.53% from the previous week's level of 11.63%. Inflation in this space was at 5.87% in the week ended January 2, 2010.

Inflation in the Non-Food Articles group stood at 20.49% in the week under consideration versus 22.39% in the previous week. Inflation in this group stood at 12.94% in the year-ago period.

Inflation in the Minerals group was at 16.70% in the week ended January 1 as against 30.58% in the week ended December 25. It was at 35.86% in the comparable period a year earlier.

On an annual basis, onions became costlier by 70.7% in the week under review, whereas on a week-on-week basis, the increase was only 1.73%. The year-on-year increase in vegetable prices was 70.73% while on a weekly basis it was 3.84%. Fruits turned costlier by 17.71% year over year, while milk prices increased by 13.20% on an annual basis during the week under review.

Egg, Meat & Fish became pricey by 16.70% compared to the year-ago period. Potatoes turned cheaper by about 1.67% annually while inflation in Cereals was almost negligible year over year and that in Pulses fell by nearly 15%. Annual inflation in Rice stood at 1.34% while wheat prices fell by almost 5%.

India's benchmark WPI inflation rate slowed in November from the year-ago period due to moderation in prices across key categories, data released by the Government showed on Dec. 14. The point-to-point inflation, as measured by the WPI, came in at 7.48% in November as against 8.58% in the previous month.

The figure was in line with consensus estimates of 7.5%. But, the Government revised upwards September's final WPI inflation rate to 8.93% from the preliminary projection of 8.63%.

The Reserve Bank of India (RBI) has set a target of 5.5% headline inflation by the end of the current fiscal year in March 2011, although it sees the risk to the upside.

The central bank might have to increase key policy rates at its next meeting in on January 25 after leaving them unchanged on Dec. 16. It has so far hiked interest rates six times since March.