Food inflation entered negative territory for the first time in nearly six years, raising hopes that the Reserve Bank of India (RBI) might ease back on lending rates soon.
The wholesale price index (WPI) for food articles, plunged to -3.36 per cent as on December 24, on the back of a sharp fall in the price of mass consumption vegetables such as onions and potatoes, as well as moderate easing in wheat and some other non-pulses food articles.
Overall, onion prices fell by 73.74 per cent year-on-year, while potatoes were down 34.01 per cent. Vegetables as a category were cheaper by 50.22 per cent during the week ended December 24, compared to a year ago.
With an overall weight of 14.34 in the WPI, the fall in food articles is expected to impact on headline inflation, currently running at over nine per cent annually.
“The environment appears to be in favour of the Reserve Bank reversing its monetary policy stance,” the Prime Minister's Economic Advisory Council Chairman, Dr C. Rangarajan, was quoted by news agency PTI as saying.
However, the RBI appears to be still cautious, with media reports quoting the central bank's Deputy Governor, Dr Subir Gokarn, stating that though the monetary tightening cycle may have peaked, “That does not necessarily say that a quick reversal is in order because inflation risks are still visible, still high.” He was speaking at a conference in Singapore.
The RBI has raised key rates 13 times in a bid to tame runaway inflation since March 2010, sending the cost of funds for businesses climbing up.