The headline inflation slowed down to its lowest level in three years, hardening expectations for an interest rate cut by the RBI later this month to boost an economy that is set to post its slowest growth in a decade.
The wholesale price index (WPI), the main inflation indicator, rose an annual 7.18% in December, the slowest since December 2009 and lower than 7.4% rise estimated by analysts. Wholesale prices rose 7.24% in November.
The slowdown in the headline number was led by a moderation in the prices of fuel and manufactured goods. The annual reading for October was revised down to 7.32% from 7.45%, the government said in a release on Monday.
Food inflation, as a category, rose to 11.16% in December against 8.50% in the previous month. Food articles have 14.3% share in the WPI basket.
While wheat turned more expensive by 23.23% in December from 23.19% in November, rice became dearer by 17.10% from 11.80%. Potatoes were costlier by 89.08% and onion by 69.24%. Milk prices declined by 5.85%, while fruits were down by 5.76%. Eggs, fish and meat prices too moderated to 10.18% compared to 14.19% in the previous month.
For the fuel and power category, inflation was 9.38% compared to 10.02% in November.
The rate of price rise in the manufactured products moderated to 5.04% in December as against 5.41% in the previous month.
However, rising for the third consecutive month, retail inflation breached the double-digit mark at 10.56% in December, driven by higher prices of vegetables, edible oil, pulses and cereal.
The retail inflation was 9.90% in November and 9.75% in October.
The vegetables basket in December recorded the highest inflation of 25.71% among all the constituents that make the Consumer Price Index (CPI), according to data released today.
Vegetables were followed by the oil and fats segment at 16.73%. Sugar turned more expensive by 13.55%.
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Pulses and cereals became dearer by 13.46% and 13.70% on an annual basis. Meat, fish and egg became 11.64% more expensive.
Clothing and footwear witnessed 10.74% increase in prices.
In urban areas, retail inflation rose to 10.42% in December from 9.69% in the previous month. The CPI for rural population increased to 10.74% during the month from 9.97% in November.
All India provisional General (all groups) CPI numbers of December 2012, for rural, urban and combined are 126.8, 124 and 125.6, respectively.
The Reserve Bank of India (RBI) is expected to take into account the double-digit retail inflation when it comes out with its third-quarter policy review later this month.