India’s food inflation rate contracted sharply to -3.36% during the week ended December 24 against a 0.42% growth in the previous week, continuing the dramatic fall during the last nine weeks.
The reason cited was a combination of fresh arrival of seasonal vegetables and a high base last year. The inflation rate was 20.84% during the corresponding week last year.
“There’s been substantial improvement. Food inflation has turned negative for the first time in the recent memory,” finance minister Pranab Mukherjee said.
Onion prices crashed by 74% during the week compared to last year when its prices skyrocketed to record levels because of speculative hoarding and unseasonal rains. Thus, this year's normal onion prices magnified the fall from last year’s unusually high prices.
Prices of potato and other vegetables also dropped sharply during the week from last year’s levels, bringing down food inflation, though protein-rich items, such as pulses, milk, meat and fish, continued to grow at a fast clip.
Economists expect the Reserve Bank of India to slash interest rates later this month in its monetary policy review, signalling a reversal of a 22-month cycle when it had raised rates to cool prices.