Inflation declines to 7.24% due to lower vegetable prices

Dec 14 2012, 16:44 IST
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Food inflation, as a category, rose to 8.5 per cent during the month, from 8.32 per cent a  year ago. Food articles have 14.3 per cent share in the WPI basket. (Reuters) Food inflation, as a category, rose to 8.5 per cent during the month, from 8.32 per cent a year ago. Food articles have 14.3 per cent share in the WPI basket. (Reuters)
SummaryVegetables prices decreased by 1.19 per cent in November this year.

Inflation declined to 7.24 per cent in November mainly on account of lower prices of some vegetables, giving a cue to RBI to consider interest rate cut next week to promote sagging growth.

Vegetables prices decreased by 1.19 per cent in November this year as compared to surge of 10.68 per cent in same month a year ago.

Inflation, as measured by the Wholesale Price Index (WPI), came down to 7.24 per cent in November from 9.46 per cent in the same month a year ago.

However, prices of some food items like potato, wheat, cereals, rice, pulses, edible oil and sugar went up during the period.

Inflation, as measured by the Wholesale Price Index (WPI), stood at 7.45 per cent in the previous month.

"It is a welcome trend if inflation rate has come down... We should work towards more comfortable level of inflation which is 5-6 per cent," Prime Minister's Economic Advisory Council Chairman C Rangarajan said.

Planning Commission Deputy Chairman Montek Singh Ahluwalia termed moderation in inflation as a "very good signal".

"The time has come to recognise that inflation is clearly softening and growth is weak and I am sure that RBI knows what to do", he added.

Yesterday RBI Deputy Governor K C Chakrabarty said cutting the repo rate (at which RBI lends to banks) will be possible only when inflation comes down. However, he expected inflation to come down in about 2-3 months.

Meanwhile, retail inflation in November moved up to 9.90 per cent, mainly on account of higher prices of sugar, vegetables, edible oil and clothing.

Chief Economist, HDFC Bank said inflation in November is much lower than what economists had expected and this should also encourage the RBI for more monetary expansion.

Chief Economist, Kotak Mahindra Bank Indranil Pan, said that Inflation data is positive but for RBI to react, the retail inflation needs to come down.

"On December 18 policy of RBI, we are expecting only CRR cut to happen. We expect a cut by 25 basis points in the CRR. Rate change is expected only in January," he added.

Food inflation, as a category in the WPI, rose to 8.5 per cent during the month, from 8.32 per cent a year ago. Food articles have 14.3 per cent share in the WPI basket. Though vegetables in general registered a decline, Potato and onion prices, however, shot up by 72.20 per cent and 17 per cent respectively year on year in November this year.

This is compared to a decline of 9.31 per cent and 35.15 per cent in the same period last year.

Wheat turned expensive by 23.19 per cent in November from a decline of 4.86 per cent in the same month a year ago. Cereals became dearer by 15.85 per cent from a rise of 2.15 per cent in the same month last year.

Pulses and eggs, meat and fish became costlier by 19.10 per cent and 14.19 per cent in November. These food items also saw a price surge by 14.96 per cent and 11.40 per cent respectively in November last year.

For the fuel and power category, inflation moderated to 10.02 per cent during the month from 15.48 per cent in November 2011. However, diesel inflation increased by 14.60 per cent last month.

In the manufactured items category, prices of cotton textiles, man-made textile, iron and steel, paper products besides rubber and plastic products rose relatively at a lower pace compared to the same month of the previous year.

The rate of price rise in the manufactured products was 5.41 per cent in November, as against 8.17 per cent in the corresponding month of last year.

Inflation for September was revised upwards to 8.07 per cent from 7.81 per cent as per provisional estimates.

India's November inflation lowest in 10 months

(Reuters): India's wholesale inflation cooled to its weakest pace in 10 months in November, a positive sign for the struggling economy but probably not a big enough slowdown to persuade the central bank cut interest rates next week.

The wholesale price index (WPI), India's main inflation gauge, rose 7.24 percent from a year earlier, below expectations for a rise of 7.6 percent and below October's 7.45 percent.

An easing in annual fuel and manufacturing inflation helped rein in price pressures. "I don't think the RBI will be in a position to reduce policy rates on Dec. 18," said Rupa Rege Nitsure of Mumbai's Bank of Baroda. "But, the probability of a rate reduction in the month of January has now gone up."

India's 1-year overnight index swap fell around 3 basis points after Friday's data.

The inflation data comes after a spike in industrial outputin October and data indicating that infrastructure output and investment is picking up, raising hopes a long slide in India's economic growth is coming to an end.

However, the economy is still headed for the weakest full-year growth in a decade, at about 6 percent, far below the near double-digit pace before the global financial crisis.

The Reserve Bank of India (RBI) has not lowered interest rates since April because inflation has remained near 7 percent, exacerbated by a weak rupee that has added to the cost of fuel imports.

The central bank has said any interest rate cut is "highly improbable" at the policy meeting on Tuesday. But given the sharply lower number, some analysts now see an outside chance the bank will change its mind.

"Given the food and manufacturing prices are much better behaved than what many private analysts had predicted, we expect inflation by March-end to be sub-7 percent," said A Prasanna, an economist at ICICI Securities in Mumbai.

"There is nothing that should stop them from cutting rates in December," Prasanna said.

Rating agency Standard & Poor's warned again on Tuesday that India's credit rating faces a one-in-three chance of being downgraded to junk over next 24 months because of a heavy debt burden and pressure on the fiscal deficit, which is seen overshooting a target of 5.3 percent in the fiscal year ending in March.

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