Inflation based on WPI declined to 6.16%, the lowest since July 2013 raising hopes of a rate cut by RBI later this month
A moderation in vegetable prices helped to pull down inflation to a five-month low of 6.16% in December. This raises hopes of a rate cut by the Reserve Bank of India (RBI) later this month to boost sagging growth.
This is the slowest pace of price rise, as measured by the wholesale price index (WPI), since July 2013, when inflation was 5.8%. In November, wholesale price inflation increased at the fastest pace in 14 months at 7.52%.
The moderation in December WPI figures comes on the back of easing prices of essential food items, including vegetables, cereals and protein-rich items.
According to official data, inflation in food articles, which has a 14.34% share in the WPI basket, was 13.68% in December. It was 19.93% in November.
During the month, inflation in vegetables declined to 57.33% from 95.25% in November. This was driven by onion prices, which gained 39.56% compared with a 190.34% rise in November.
However, the rate at which potato prices rose was more than double at 54.65% in December over November.
Inflation in fruits and protein-rich items such as eggs, meat and fish stood at 9.07% and 11.40%, respectively. In milk, inflation increased to 6.93%.
With inflation declining, industry has clamoured for a reduction in interest rates. However, some experts said the central bank may keep rates on hold at its quarterly monetary policy scheduled on January 28.
Industry chambers have pitched for lower interest rates to prop up growth. Industrial output in November contracted 2.1%, the worst performance in six months. "The easing of inflation at a time when industrial growth continues to be in the red should induce RBI to review its monetary policy stance and cut its policy rates to rejuvenate growth, which has been hit by high interest costs, flagging investments and subdued demand," Chandrajit Banerjee, director general of Confederation of Indian Industry (CII) said.
October inflation was revised upward to 7.24% from 7% earlier.
The RBI kept key policy rates unchanged last month on expectations that wholesale and retail inflation would ease.
The central bank had increased the key policy rate (repo) twice between September and November to check inflation. The repot rate at present is 7.75%.
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