A fall in vegetable prices brought food inflation to a near four-year low of 4.35% for the week ended December 3 against 6.60% in the previous week, bringing some cheer for the government.
The RBI, however, may not decide to reduce interest rates in its review on Friday. Indications are that the RBI would only press the pause button after increasing interest rates for 13 times in the last 20 months.
The drop in food prices is primarily due to the seasonal effect — arrival of fresh winter vegetables. While onion prices fell by 46.03%, potato prices dropped by 33.38% year-on-year during the period.Prices of other food products became dearer on an annual basis. While prices of pulses rose by 11.76%, milk became dearer by 11.08%. Prices of eggs, meat and fish rose by 9.26%.
"Domestically, the struggle against inflation and tightening of the interest rate regime has contributed to the lowering of growth in demand and investment," finance minister Pranab Mukherjee said at a CII function.
"Inflation is headed downward and that is a huge relief and we feel that RBI must be ahead of the curve and reduce policy rates," said Rajiv Kumar, secretary-general, FICCI.