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Inflation at 5-month low

New Delhi, Jan. 15: The rate of inflation touched a five-month low of 6.16 per cent in December on lower vegetable prices, providing some relief to the Congress-led UPA coalition before the Lok Sabha polls.

While inflation data raised hopes of a rate cut among industry representatives, analysts expect the Reserve Bank of India to hold on to key interest rates in its policy review later this month.

The wholesale price index (WPI) climbed 6.16 per cent last month, its slowest pace since July 2013, when inflation was at 5.8 per cent. In November, wholesale price inflation increased at the fastest pace in 14 months at 7.52 per cent.

The moderation in December WPI figures comes on the back of easing prices of essential food items, including vegetables, cereals and protein-rich items.

Vegetable prices fell nearly 30 per cent from November, bringing down overall rise in food prices for the month to 13.68 per cent from 19.93 per cent a month ago.

Vegetable prices in December rose 57.33 per cent compared with December 2012, while the rate of price rise was much higher in November 2013 at 95.25 per cent against November 2012.

Onion prices gained 39.56 per cent in December, while in November it rose 190.34 per cent against year-ago numbers.

However, the rate at which potato prices rose was more than double at 54.65 per cent in December over November. Inflation in fruits and protein-rich items such as eggs, meat and fish was 9.07 per cent and 11.40 per cent, respectively. For milk, the rate of inflation was 6.93 per cent.

“The easing of inflation at a time when industrial growth continues to be in the red should induce the RBI to review its monetary policy stance and cut its policy rates to rejuvenate growth, which has been hit by high interest costs, flagging investments and subdued demand,” CII director-general Chandrajit Banerjee said.

However, Aditi Nayar, senior economist of Icra, said, “Given the weakness in consumer demand and contraction in industrial production in October-November 2013, we expect the central bank to retain the repo rate in the upcoming policy review.”

 
 
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