Headline inflation declined to a five-and-a-half year low of (-)0.39 per cent in January on the back of a sharp decline in prices of fuel and manufacturing products. However, the food prices remained high, the data released by the commerce and industry ministry showed.

According to the Wholesale Price Index (WPI), which gauges the headline inflation, while fuel prices declined by 10.69 per cent in January compared to a decline of 7.82 per cent in December, the rate of price rise in manufactured products was 1.05 per cent compared to 1.57 per cent in the previous month. The Sensex was up by 117 points or 0.4 per cent in the afternoon trading hours following the WPI data.

However, the food inflation continued to remain high at 8 per cent compared to 5.20 per cent in December as pulses, vegetables and cereals became dearer.

The WPI stood at 0.11 per cent in December while the November data was revised downwards to a negative 0.17 per cent from the provisional estimate of zero, the data showed.

The data comes after the index of industrial production showed a growth of only 1.7 per cent in December while retail inflation stood at 5.11 per cent, well below the RBI’s comfort level of 6 per cent.

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Debopam Chaudhuri, Vice President- Research & Chief Economist, ZyFin Research:
Wholesale prices of food continues to be sticky with a growth of 8% in January 2015. This is in line with the CPI estimates. Food inflation remains a concern and would rise further if there is any correction in fuel prices. Incidentally there was a marginal rise in petrol and diesel prices announced today. While the RBI relies more on retail prices than wholesale prices, converging trends on food inflation may signal a further waiting before interest rates start to decline any significantly.

Dr Jyotsna Suri, President, FICCI
Given the continuing trend of moderate inflation both at the wholesale and retail level and the fact that a durable recovery in the industrial sector is still out of sight, we hope that the central bank would continue with the policy rate cut cycle after the forthcoming budget.
Even though crude oil prices have noted an increase over the past fortnight, prompting the government to increase prices of petroleum and diesel, given the persistent weak global demand and assuming no immediate exogenous geo-political risks, oil prices are expected to remain within the comfort zone.
We do see an increase in the prices of certain food items such as pulses and vegetables and the same was also reflected in the recently released data for Consumer Price Inflation (CPI). This is largely the result of structural rigidities that have marred the food supply chain and we hope to see the government take further measures to iron out such kinks in the agri-commodities supply chain.