Food Inflation fell to its Lowest Level in Six Years at 0.42% for the Week ended 17 December 2011

According to data released on 29 December 2011, food inflation fell to its lowest level in six years at 0.42 per cent for the week ended 17 December with a sharp decline in prices of essential items like onions and potatoes. The fall is  likely to prompt the RBI to cut interest rates at its policy review in January 2012. Food inflation declined to below 1 per cent, the lowest since April 2006.

Food inflation was in double digits in early November 2011. It stood at 1.81 per cent in the previous week ended 10 December 2011. Experts attributed the fall to a good kharif harvest as well as a high base.

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

Onion prices 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. Inflation in the vegetable and wheat segments eased during the reporting week but prices of protein-rich items such as eggs, milk and pulses continued to remain high. Pulses grew costlier by 14.07 per cent during the week under review, while milk grew dearer by 11.30 per cent and eggs, meat and fish by 11.56 per cent.

Inflation in the overall primary articles category stood at 2.70 per cent during the week ended December 17, as against 3.78 per cent in the previous week ended 10 December 2011.

Inflation in the non-food segment, which includes fibres and oilseeds, was recorded at 0.28 per cent during the week under review, as against 1.37 per cent in the week ended 3 December. Fuel and power inflation stood at 14.37 per cent during the week ended 17 December as against 15.24 per cent in the previous week.

Headline inflation remained above 9 per cent-mark since December 2010. It stood at 9.11 per cent in December and the RBI had projected it to fall to 7 per cent by March 2012. Manufactured inflation, which forms over 65 per cent of the WPI basket, is hovering around 8 per cent.