Cheaper food pulls down inflation to 26-month low of 6.55%

NEW DELHI: Cheaper food items pulled down the overall inflation to a 26-month low of 6.55 per cent in January, a development which may prompt the Reserve Bank to cut interest rates at its mid-quarterly review next month.

Finance Minister Pranab Mukherjee hoped that moderation in inflation would continue in the coming months and pegged it at 6 per cent by March-end as against the earlier estimate of 7 per cent.

Inflation, as measured by the Wholesale Price Index (WPI), stood at 7.47 per cent in December 2011. It was 9.47 per cent in January last year.

The latest numbers are the lowest since November, 2009 when the inflation was 4.73 per cent.

"I think it (inflation) should be further reduced since it is still not at acceptable level... (I) now expect that the March-end 2012 inflation will be closer to 6 per cent," Mukherjee said.

As per the data, food inflation was (-) 0.52 per cent in January against 0.74 per cent in December. Food inflation fell into the negative zone on account of cheaper vegetables, like potato and onion whose prices fell by 23.15 per cent and 75.57 per cent, respectively, on annual basis.

However, prices of manufactured items, which have a weight of around 65 per cent in the WPI basket, continued to be a cause for concern. Manufactured inflation stood at 6.49 per cent year-on-year in January, as against 7.41 per cent in the previous month.

On the possibility of RBI lowering interest rates at its next policy review on March 15, Moody's Analytics Senior Economist Glenn Levine said, "It is only a matter of time before they cut... We expect a March rate cut with a couple more cuts throughout the year, depending on what inflation does in the coming months."