'Stubborn' inflation seen easing in December on lower vegetable prices

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Vegetables from a new harvest started reaching markets by early December and that has brought down the prices of items such as onions. (Reuters) Vegetables from a new harvest started reaching markets by early December and that has brought down the prices of items such as onions. (Reuters)
SummaryEasing inflation will make life easier for RBI that has an arduous task of pulling up the economy.

India's stubbornly high inflation finally appears to be slowing down following a cooling in vegetable prices, bringing some relief to the ruling Congress party which is struggling to win back voters ahead of a national election due by May.

Easing inflation will also make life easier for a Reserve Bank of India (RBI) that has an arduous task of pulling the economy out of a stagflation-like situation. Economic growth in India has been stuck below 5 per cent for the past four quarters but prices have risen at a fast clip.

According to a Reuters poll, consumer inflation, probably eased to a three-month low of 9.92 per cent in December, from 11.24 per cent the previous month - the highest reading on record.

Wholesale prices, India's benchmark inflation, also likely edged down last month to 7.00 percent from a 14-month high of 7.52 per cent in November, the Reuters poll showed.

"Inflation has peaked in the near-term," said Rahul Bajoria, regional economist with Barclays Capital in Singapore. "But any supply shock has the potential of flaring up food prices."

The government will release the December data on consumer prices on Monday evening. Wholesale prices data is due on Tuesday at around noon.

Annual headline inflation has been averaging 8 percent, almost double the central bank's comfort zone, for the past four years. Even India's worst economic slowdown in a decade has failed to cool prices.

Persistently high inflation amid the slowdown is pressuring household budgets and company profits, hitting consumer demand as well as corporate investments.

At the heart of inflationary woes are the prices of essential food items such as vegetables. Spikes in their prices have led to demands for higher wages, which in turn have raised costs for companies.

COSTLY VEGETABLES

A surge in vegetables prices, which rose 116 percent between March and November, was one of the principal reasons for the drubbing the Congress party received in recent state elections.

Vegetables from a new harvest started reaching markets by early December, and that has brought down the prices of items such as onions, which figure into almost every Indian meal.

The onion price, which once shot up 190 percent to $1.61 a kilogram, has come down to 48 cents. Still, not every Indian household is finding it affordable.

After the price spike, "I was using only one medium onion per day to prepare meals," says Rina Sahu, 42, a homemaker in the eastern state of Odisha. "Now I am using

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