The massive drop in onion prices (75.42%) and vegetable prices (45.81%) during the week has caused the decline. Besides, the prices of potato and wheat declined by 23.84% and 3.57%, respectively.
Experts say that the increase in supply of vegetables in the winter months and bumper onion and potato prices have resulted in fall in inflation graph in recent weeks. Besides favourable base affect has also contributed to the decline.
Due to increase in supply of vegetables in winter months, the prices have fallen. However the prices are expected to go up by end of February and this will push food inflation, PK Joshi, senior programme coordinator, International Food
Policy Research Institute, told FE.
However other food items mainly the protein-based items, became expensive on an annual basis. The pulse prices rose by 14.27% during the the reporting week, while milk became dearer by 11.48%. Egg, meat and fish prices were up 19.64% year-on-year. Even fruits became 10.03% more expensive on an annual basis, while cereal prices rose by 2.26%.
Available data regarding sowing trends for the rabi season indicates a shortfall in the area sown under pulses and oilseeds, which may result in a further increase in the price levels in the coming weeks. Once the impact of the favourable base effect wears off in February 2012, food inflation is expected to rise to around 6-6.5% in March 2012, Aditi Nayar, Economist, Icra noted.
Early this month, the weekly food inflation for the first time in last six years entered a negative zone (-) 3.36% following softening of prices of vegetables.
There has been substantial improvement. Food inflation has turned negative for the first time in recent memory, finance minister Pranab Mukherjee had then stated.
FE has reported about the bumper production of onion and potato for the last few years along with lack of onion exports because of higher minimum export price have resulted in sharp fall in retail prices of onion and potato The decline in food inflation, along with moderation in headline inflation during December 2011, would be a major incentive for the Reserve Bank to look at the option of cuts in key interest rates in the near future.