Inflation hits 8-month low on easing food prices

The development provides an opportunity to the Reserve Bank of India to soften its hawkish monetary stance.

Providing relief to the government and the industry, headline inflation for January softened to eight-month low of 5.05 per cent as food prices including that of vegetables eased.

According to the wholesale price index (WPI) data released today, inflation in January is lowest since May 2013 when it stood at 4.58 per cent. Headline inflation in December was 6.16 per cent while it was 7.52 per cent in November 2013. Coming at a time when the December industrial output has contracted 0.6 per cent due to several reasons including high interest rates, the development provides an opportunity to the Reserve Bank of India to soften its hawkish monetary stance.

The index for food articles declined by 2.7 per cent year-on-year due to lower price of fruits and vegetables, maize, gram, arhar and tea among others while that of non-food articles rose marginally 0.1 per cent. Vegetables prices rose 16.6 per cent in January compared with a 57.33 per cent increase in December. Fruits became cheaper along with protein-rich items. Milk became dearer by 7.22 per cent in January. Inflation in the fuel and power segment was 10.03 per cent and 2.76 per cent in manufactured products.

Economists said that though both WPI and consumer prices index (CPI) have cooled, core WPI and CPI inflation levels have picked up slightly. “The RBI has indicated that in case the trajectory for inflation moderates, further policy tightening is unlikely… In its April 1 policy, we expect the RBI to hold rates,” Bhupali Gursale, economist, Angel Broking said.

Buoyed by moderation in price rise, industry called for relief on the interest rate front, asking the RBI to reconsider its tough monetary stance. “We must very urgently concentrate on reviving growth for the manufacturing sector,” Sidharth Birla, president, Ficci, said. CII, meanwhile, said that the government should address supply-side bottlenecks to prevent food inflation from staging a comeback.