December retail inflation eases, signals relief for RBI, govt

The softening of food inflation has had its effect on overall inflation . Figures released by the government on Monday (January 13) showed the consumer price index (CPI) having risen by 9.87 per cent in December 2013 as compared to the corresponding month the previous year. This is lower than the November CPI rise, which was 11.16 per cent.

All categories in the CPI list, except sugar, have shown a price increase. The items registering the maximum price rise are vegetables (38.76 per cent), fruits (14.64 per cent), egg, meat and fish (12.64 per cent) and cereals and products (12.14 per cent). Overall, the food and beverages basket registered an increase of 12.16 per cent, higher than the other two categories in the list - clothing, bedding and footwear (9.25 per cent) and fuel and light (6.98 per cent).



Some of the smaller states and union territories such as Sikkim, Nagaland, Mizoram, Andaman & Nicobar Islands and Meghalaya, however, ran contrary to the overall trend and saw their inflation numbers going up in December as compared to the previous month.

The rate of CPI inflation in rural India (10.49 per cent) was higher than in urban areas (9.11 per cent).  

The RBI , which has been keeping a close eye on inflation, will be relieved. Last month, RBI governor Raghuram Rajan surprised all when he kept the repo rate unchanged at 7.75 per cent despite inflation being high. But the status quo in the rates was accompanied by a warning. "If the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank will act including on off policy dates if warranted," the RBI statement said.

Experts say that the December WPI (wholesale price index) number, which is expected to be announced on Wednesday, now holds the key to the direction interest rates will take in the next few months. Since June last year, the WPI has been on the rise (see table). Says Ashima Goyal, professor, Indira Gandhi Institute of Development Research (IGIDR): "Food inflation is very critical. The decline in CPI was expected and that is why RBI kept the monetary policy on pause mode. But the inflation rate is still high. It needs to come down further."