For the first time in nearly six years, food inflation entered negative territory, plunging to (-) 3.36 during the week ended December 24 from 0.42 per cent in the previous week, mainly owing to a sharp dip in prices of onions, potatoes and other seasonal vegetables.
The slump into the negative zone for the first time as per the available WPI (wholesale price index) food inflation data with 2004-05 as the base year appears to have paved the way for a much-awaited cut in key rates by the Reserve Bank of India during its next monetary policy review slated for January 24.
High base effect
This is despite the fact that the sharp decline is partly owing to the effect of a high base as food inflation during the like week in 2010 was at a high of 21 per cent. Nevertheless, enthused by the respite from high food prices, Finance Minister Pranab Mukherjee said: “There has been substantial improvement. Food inflation has turned negative for the first time in the recent memory.''
The figures speak for themselves.
As per the official data released here on Thursday, onion prices slumped by 73.74 per cent during the week while potatoes also turned cheaper by 34.01 per cent on a year-on-year basis.
Prices of vegetables, on the whole, fell by 50.22 per cent, as did wheat by 3.41 per cent.
Compared to prices of edibles during the first week of November when food inflation stood pegged at double digits, the slide in prices has been substantial.
Policy stance
Commenting on the WPI data, Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan said: “The environment appears to be in favour of the RBI reversing its monetary policy stance.”
Dr. Rangarajan viewed that the decline in food inflation would also help bring down headline inflation — which factors in manufactured items, fuels and non-food primary articles — to below 7 per cent by March this year.
Evidently, having hiked interest rates 13 times since March last year, followed by a pause in December, the stage is set for the Reserve Bank of India to cut its key policy rates so as to induce overall consumer demand and spur industrial growth.
