Food inflation up a tad to -2.9%

Food inflation remained in the negative territory, despite the rate of decline slowing a bit for the last week of December, as supply eased in the winter season, also partly due to the base effect. The rate was minus 2.9 per cent, up from minus 3.36 per cent in the previous week.

Onions, vegetables, potatoes and wheat continued to see a decline in prices. Finance minister Pranab Mukherjee expressed confidence that the moderation would continue, though a softening in the rate of price rise in manufactured goods may be more gradual, despite the rapid decline in non-food primary inflation.

“The headline inflation should be between six and seven per cent by end-March,” the minister said. Overall inflation was above nine per cent for the year till November 2011.

The small upward movement in the rate of fall in food prices can be partly credited to the base effect, as food inflation eased to 19.09 per cent in the corresponding week of last year, from 20.84 per cent the previous week.

The weekly food inflation numbers for December showed a sudden decline, from 4.35 per cent in the first week to negative in the third week.

As it has a weight of 14.35 per cent in headline inflation, it will ensure the latter remains below nine per cent in December. The November headline inflation rate was 9.11 per cent.

“The inflation numbers are on expected lines and would continue to remain range-bound till about February 12. Thereafter, we should see the numbers going up. In case RBI reduces rates in April, we will see demand-pull inflation also creeping into the economy,” said Siddharth Shankar, director, KASSA.

JPMorgan India economist Sajjid Z Chinoy does not see the Reserve Bank of India reversing its monetary stance, saying core inflation (manufactured products inflation without the food part) was still at 7.9 per cent, significantly above RBI’s comfort zone. “Even if core (inflation) were to moderate in the December print, it is unlikely RBI will read too much into one month’s moderation and will likely want evidence of a more sustained decline,” he said.

RBI, in its quarterly review of monetary policy last month, had said it expected inflation to remain elevated till December on account of the demand-supply mismatch before moderating to seven per cent by March 2012.

Though vegetables’ inflation was negative at 49.03 per cent, it was a little higher compared with the previous week’s at minus 50.22 per cent. Potato deflation was up at 31.97 per cent from 34.01 per cent a week earlier. Onions saw a continuous decline, at 74.77 per cent.

The pressure from protein-based items continued to remain robust. Inflation in eggs, meat and fish rose to 15.22 per cent versus 13.82 per cent earlier. Milk was up at 10.79 per cent from 9.49 per cent.