Inflation moderates, gives hope of rate cut

New Delhi : India’s general inflation moderated to 7.18 percent in December, the lowest since December 2009, giving hope to the industry and banking sector of a policy rate cut by the central bank.

The inflation moderated due to softening in power and fuel prices, government data showed Monday. The rate for November, 2012, was 7.24 percent.

The rate in increase of prices was recorded at 7.74 percent in the corresponding month of the previous year.

Moderation in inflation would give some relief to the policymakers, who have been struggling to balance the need for controlling the inflationary pressure and stimulate economic growth.

Inflation has remained at an elevated level despite a tight monetary policy adopted by the Reserve Bank of India (RBI).

There will be pressure on the RBI for rate cuts in its quarterly review of monetary policy for 2012-13 Jan 29, 2012.

The latest inflation data also had a positive impact at the Bombay Stock Exchange (BSE).

The 30-scrip sensitive Sensex of the BSE increased by more than half a percent in the late afternoon trade.

Sectoral indices such as information technology (IT) was up 146.14 points, followed by bank index, which was higher by 120.78 points and consumer durables index which gained by 103.49 points.

The RBI has kept key lending and borrowing rates unchanged, saying inflation remained sticky and might rise further.

Another barring on the RBI, apart from a slowdown in inflation, will be the November’s industrial production data, which had logged a negative 0.1 percent growth year-on-year in November 2012.

However, the increase in wholesale-based food price inflation to 11.16 percent in December from 0.79 percent recorded in the corresponding month of 2011, will remain a major concern for the central bank.

The rise in food prices was largely due to an exponential increase in the cost of onions, potatoes, wheat, rice and cereals, according to data released by the ministry of commerce and industry.

Onions became costlier by 69.24 percent, while potatoes became expensive by 89.68 percent and the price of wheat jumped by 23.23 percent. The price of rice was up 17.10 percent, prices of cereals were up 19.02 percent and pulses surged by 17.57 percent year-on-year.

Vegetables became expensive by 23.25 percent in wholesale market.

However, fruits’ prices dipped a little at 5.76 percent from 8.78 percent a year-ago, while that of milk also slowed down to 5.825 percent from 11.02 percent reported in the corresponding month of 2011-12.

The cost of eggs, meat and fish also decelerated to 10.18 percent from 13.10 percent in the corresponding period of 2011-12.

Fuel and power inflation moderated to 9.38 percent in December as compared to 14.98 percent in the corresponding month of the last year.

Inflation of manufactured products declined to 5.04 percent in the period under review as compared to 7.64 percent in the corresponding month of previous year.