Inflation eases to 8-month low of 5.05%; vegetables cheaper

Wholesale inflation eased to a seven-month low of 5.05 percent in January, on decline in the rate of price rise in food articles, mainly vegetables.

PTI| Last Updated: Feb 14, 2014, 16:44 PM IST

New Delhi: Providing relief to the common man, inflation in January eased to an eight-month low of 5.05 percent, helped by a moderation in food prices.

The second straight month of deceleration in inflation as measured by the wholesale price index also gives a breather to the Reserve Bank, which has been trying to tame rising prices.

WPI inflation was at 6.16 percent in December compared with 7.52 percent in November.

January's inflation rate is the slowest since May 2013, when wholesale prices increased 4.58 percent.

Inflation in food articles in January came down to 8.8 percent as against 13.68 percent in the preceding month, according to data released Friday.

"Food inflation remains elevated in spite of the overall favourable monsoon and agricultural production scenario, highlighting the demand-supply gaps and issues related to the supply chain," ICRA Senior Economist Aditi Nayar said.

As per the WPI data, prices of vegetables rose 16.6 percent in January compared with a 57.33 percent increase in December.

Onion prices climbed 6.59 percent compared with a 39.56 percent increase in December. Potato prices climbed 21.73 percent in January.

Fruits were cheaper, as were protein-rich items such as eggs, meat and fish. However, inflation in milk inched up slightly to 7.22 percent in January.

Data released this week showed retail inflation declined to a two-year low of 8.79 percent in January, while industrial output in December shrank 0.6 percent, prompting calls by industry for an interest rate cut to boost growth.

"We must and very urgently concentrate on reviving growth for the manufacturing sector and lay special emphasis on resolving problems of the MSME sector also," Ficci President Sidharth Birla said.

According to the WPI data, inflation in primary articles and in the fuel and power segment was at 6.84 percent and 10.03 percent, respectively.

Inflation in manufactured products such as sugar and edible oils was up marginally at 2.76 percent on a monthly basis.

The Reserve Bank had increased a key interest rate by 0.25 percent to 8 percent in its Third Quarter Review of Monetary Policy on January 28. The central bank factors both retail and wholesale price based inflation data in its monetary policy.

"In the absence of an upside surprise in the inflation trajectory or in inflation expectations, it is likely to hold policy rates steady in the coming months," Barclays said in a research note.

There have been demands from various quarters that the RBI should look at relaxing interest rates as inflation has showed signs of easing while the slowdown in industrial output has persisted.

A Finance Ministry document said high inflation poses a big threat to growth as it would impair the ability of the Reserve Bank to cut interest rates to boost economic activities.

"The outlook on growth is...Threatened by certain downside risks; the biggest of them being the high rate of inflation, which further dents the ability of the RBI to extend monetary policy support to growth revival," it said.

Economic growth fell to a decade-low of 4.5 percent in 2012-13 fiscal and is estimated at 4.9 percent in current financial year.

Assocham said an easy interest rate policy would not only create additional demand at the consumer level, it would also substantially lower the cost of borrowing for industry.

"We expect this trend to continue in the coming months, giving more elbow room to the RBI for an accommodative interest rate policy," Assocham President Rana Kapoor said.