December inflation at two-year low of 7.47%

Headline inflation fell to a two-year low of 7.47% in December 2011 on cheaper food items, a factor which may prompt the Reserve Bank to cut policy rates in the upcoming review.

Headline inflation, as measured by Wholesale Price Index (WPI), had stood at 9.11% in November. It was 9.45% in the same month of 2010.

The latest numbers are the lowest since December 2009 when headline inflation was at 7.15%.

As per the official data released today, vegetables were cheaper by 34.18% and wheat by 3.81% on an annual basis. Potato and onion prices also fell by 35.45% and 60.45% year-on-year during December. (Low food inflation)

Prices of food items rose at a lower rate of 0.74 per in December, compared to 8.54% expansion in the previous month.

Food articles have a 14.3% share in the WPI basket and experts attributed the moderation in inflation to cheaper food articles.

Inflation in overall primary articles stood at 3.07% in December, compared to 8.53% in November.

Non-food primary articles, which include fibres and oil seeds also showed moderation by registering an inflation of 1.48% in December, compared to 3.22% rise in the previous month.

However, inflationary pressure continued in manufactured items, which which have a weight of around 65% in the WPI basket.

Prices of manufactured products, went up by 7.41% year-on-year in December, as against 7.70% in the previous month.

Inflation in manufactured items has been high since February 2011, when it crossed the 6%-mark.

Among manufactured items, iron and semis grew dearer by 24.44% and edible oil prices rose by 11.52%. The cost of tobacco products moved up by 13.18% and basic metals became 12.96 expensive year-on-year.

Inflation in the fuel and power segment stood at 14.91% on an annual basis in December, against 15.48% in the previous month.

Meanwhile, inflation for October 2011 has been revised upwards to 9.87% from provisional estimate of 9.73%.

Experts said that the moderation in inflation will give more leeway to RBI to consider cuts in interest rates in the next few months.

Headline inflation in the country has been above the 8% mark since January 2010, while it has remained above 9% since December of the same year.

The apex bank has already hiked key policy rates 13 times since March, 2010, to tame inflation.

India Inc has said the string of rate hikes, which have raised the cost of borrowing, have acted as a dampener to fresh investment and hindered growth.

The economic growth in July-September period of 2011-12 stood at 6.9%, the lowest in over two years.

RBI, however, has put a pause to its rate hike policy since November last year and hinted that it may start loosening its tight monetary policy if inflation falls. It had projected inflation to fall to 7% by March this year.

Last month, Finance Minister Pranab Mukherjee pegged inflation at 6-7% by March-end, on back of drop in food prices..

Also read: November inflation eases to 9.11%