Food price index falls for first time in 6 years

NEW DELHI Thu Jan 5, 2012 1:43pm IST

A vendor waits for customers at his fruit stall at a market in Kolkata December 8, 2011.REUTERS/Rupak De Chowdhuri

A vendor waits for customers at his fruit stall at a market in Kolkata December 8, 2011.

Credit: Reuters/Rupak De Chowdhuri

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NEW DELHI (Reuters) - Food price index declined for the first time in nearly six years as costs of pulses and vegetables fell, raising hopes that December's headline inflation rate will drop below 9 percent for the first time in more than a year.

A high statistical base effect and moderation of prices on improved supply of crops such as pulses, vegetables and potatoes pulled food price index down 3.36 percent in the year to Dec 24. But fuel inflation accelerated to 14.6 percent, government data on Thursday showed.

In the previous week, annual food and fuel inflation stood at 0.42 percent and 14.37 percent, respectively. This was the first time the food price index has declined since April 2006.

The primary articles price index was up 0.10 percent, compared with an annual rise of 2.70 percent a week earlier.

"I see food prices continuing to moderate in January. This will pull down expectations to below 7 percent as the RBI had wanted, so I see no reason why headline inflation cannot be less than 7 percent by end-March", said N. Bhanumurthy, economist with National Institute of Public Finance and Policy, a New Delhi think tank.

While prices of pulses declined by 0.52 percent on the week, potatoes and vegetables declined by over 6 percent and 2 percent respectively.

"The RBI may not react only on the basis of the food number today. It will wait for bigger indicators like headline inflation for December to decide on a course of action on the monetary policy", Bhanumurthy said.

India's headline inflation has stayed above 9 percent for a year, despite 13 rate increases by the central bank since March 2010.

"The pass-through of the depreciation of the rupee is likely to keep inflation related to minerals and non-food manufactured products at elevated levels", said Aditi Nayar, an economist with ICRA Limited.

Reserve Bank of India deputy governor Subitr Gokarn said earlier on Thursday, that the momentum of indicators suggests that inflation in India is slowing.

"There is a clear stance of the momentum easing and we expect that beyond the 7 percent projection we have for March, that we will see this downtrend continuing into the first half of 2012 and 2013," he said in Singapore.

(Editing by Harish Nambiar and Ramya Venugopal)

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