Inflation moderates to 2-year low of 6.55 pc in Jan

New Delhi: Headline inflation fell to an over two-year low of 6.55 per cent in January on cheaper food items, which may prompt the Reserve Bank to cut policy rates in the coming months.

Headline inflation, as measured by the Wholesale Price Index (WPI), had 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 December 2009 when headline inflation was at 7.15 per cent.

On inflation, Finance Minister Pranab Mukherjee said that the rate of price rise was still not at an acceptable level and should fall further. "I think it (inflation) should be further reduced since it is still not at acceptable level. I do hope (further) moderation will come," Mukherjee told reporters.

As per the official data released today, food inflation was (-) 0.52 per cent in January against 0.74 per cent in December.

Vegetables were cheaper by 43.13 per cent and wheat by 3.48 per cent on an annual basis. Potato and onion prices also fell by 23.15 per cent and 75.57 per cent year-on-year in January.

Food articles have 14.3 per cent share in the WPI basket and experts attributed the moderation in inflation to cheaper food articles.

Prices of manufactured items, which have a weight of around 65 per cent in the WPI basket, went up by 6.49 per cent year-on-year in January, as against 7.41 per cent in the previous month. Inflation in manufactured items has been high since February 2011, when it crossed the 6 per cent mark.

Among manufactured items, iron and semis grew dearer by 18.46 per cent and edible oil prices rose by 9.59 per cent. The cost of tobacco products moved up by 9.36 per cent and basic metals became 11.99 per cent expensive year-on-year.

Inflation in overall primary articles stood at 2.25 per cent in January, compared to 3.07 per cent in December, as per today`s data.

Non-food primary articles, which include fibres and oilseeds also showed moderation to 0.55 per cent in January, compared to 1.48 per cent in the previous month.

Inflation in the fuel and power segment stood at 14.21 per cent on an annual basis in January, against 14.91 per cent in the previous month.

Meanwhile, inflation for November 2011 has been revised upwards to 9.46 per cent from provisional estimate of 9.11 per cent.

Experts said that the moderation in inflation will give more leeway to RBI to consider cuts in interest rates in the next few months. Headline inflation was near double digit for most of 2010 and 2011. The apex bank hiked key policy rates 13 times, totalling 350 basis points between March 2010 and October 2011, to tame inflation.

India Inc has said the string of rate hikes, which have raised the cost of borrowing, have acted as a dampener to fresh investment and hindered growth.

As per the advanced estimates, Indian economy is projected to grow by 6.9 per cent this fiscal, lowest in three years, on account of slowdown in manufacturing and agriculture.