Inflation cools to zero, but not good enough for rate cut

RBI will wait for a sustained decline in the key macroeconomic measure in the new year before pressing the 'cut' button

It so happened in 2014 that inflation hit a perfect-zero for wholesale prices and the retail one also more than halved to 4.4%, still it was not good enough for the much-awaited cut in interest rates.

As the ghost of the past -- when inflation levels were at sky-high levels -- continued to haunt the macroeconomic scenario, the policymakers took a view that it was the 'base effect' of high price rise rates a year ago, that has resulted in so low inflation levels.

Accordingly, the policymaker -- the RBI -- will wait for a sustained decline in this key macroeconomic measure in the new year before pressing the 'cut' button on interest rates -- for which the industry and government made persistent demands throughout the year 2014.

Amid falling prices of crude oil and other commodities in the international markets, indications are that the inflation would continue to decline, at least on retail side, where the last measurement stood at 4.4% for the month of November -- as against almost 9% at the start of 2014.

The inflation based on wholesale prices (WPI) dipped to zero level in October, from over 5% in January 2014, and a further decline could result in negative inflation or deflation, although economists do not anticipate deflationary side effects for the overall economy as yet.

Still, the decline in both inflation measures has come as a big relief to the government and consumers, who had to reel under the double-digit inflation during most of 2013.

Falling global crude oil prices on supply glut has been one of the major contributors towards falling inflation in India as diesel is a key input in transporting commodities.