Headline inflation slipped to its two-year low at 7.47 per cent in December, 2011, from 9.11 per cent in the previous month on food items turning cheaper, but a cut in key policy rates by the Reserve Bank of India (RBI) may have to wait for some more time as the price spiral in manufactured goods continues to be an area of concern.
Though markedly lower than the level of 9.45 per cent in December, 2010, official data on the WPI, overall inflation in December reveal that the significant decline from over 9 per cent in November and at near double digits through most of 2011 was primarily owing to a sharp fall in prices of vegetables. Alongside, prices of protein-rich items among edibles and inflation in manufactured goods, though on a declining trend, continued to rule at higher levels.
As per the WPI data, the rate of price rise in food items eased to 0.74 per in December, 2011, as compared to a fast clip of 8.54 per in November, mainly because vegetables turned cheaper by as much as 30 and 60 per cent on a year-on-year basis.
On the contrary, the manufactured goods segment, which accounts for a weight of nearly 65 per cent in the WPI basket, witnessed only a marginal year-on-year easing in inflation to 7.41 per cent during the month from 7.70 per cent in November. Inflation in the fuel and power segment also stood a tad lower at 14.91 per cent on a yearly basis in December, as against 15.48 per cent in the previous month.
Commenting on the inflation numbers, Finance Minister Pranab Mukherjee expressed concern over high prices of manufactured goods while hoping that declining food prices would bring down headline inflation to 6-7 per cent by the fiscal year-end. Despite the fall in inflation, a cut in interest rates still remains a few months away. Cautioning against any downward tinkering in rates by the apex bank during its policy review on January 24, Prime Minister's Economic Advisory Council Chairman C. Rangarajan said: “The RBI, while framing its monetary policy, will have to take into account not only the decline in food inflation and headline inflation, but also factor in manufactured inflation …''
