Food Inflation turns negative for first time in 6 years !


Few years ago, a cup of tea and 300 ml of soft drink could be bought at Rs.4 and Rs.10 respectively. But today, a cup of tea costs much dearer at Rs.10, whereas Pepsi/Coke can be sipped at Rs.12-13. That’s the extent to which the prices of milk have increased over a period of time.

Further, if official data indicates that the food inflation has turned negative for the first time in almost six years, would you believe them? As per wholesale price index and rate of inflation data with base year 2004-05, food inflation came in negative at 3.36% for the week ended December 24, as against 0.42% in the previous week.

Prices of essential items like onion, potato, wheat and vegetables has declined significantly since the first week of November; with vegetable prices almost halving year-on-year during the week ended Dec 24.

On the other hand, the prices of poor men’s staple diet – onion and potato – took the biggest year-on-year hit by 73.74% and 34.01% respectively, to drag the food index lower to 190 points.


Well, that’s not everything to cheer about. Check the retail price of cheese cubes available in your nearest kirana store – while Amul’s cheese sells at Rs.10 per cube, Govardhan’s processed cheese costs Rs.9 per cube. Have you ever wondered why processed dairy products are so costly?

Milk prices have been rising constantly since at least past 6-8 weeks. The nutrition from milk has become dearer by 9.49% during the week under review; whereas prices of protein-based items such as egg, meat, fist and pulses reported an increase in the rate of price by over 13% on an annual basis. In addition, fruit prices have remained stubborn with price rise of 10.87% y-o-y.

Lastly, food articles that has shown stable trend in their price module are cereals and rice, which have shown negligible price rise over past many weeks. Thus, inflation in the primary article segment, whose weightage comprises of a fifth of the WPI index, stood at 0.10% during the week ended December 24.’

Frankly, I do not attribute the cool down in food inflation to RBI’s monetary tightening measures effected during last one and half years. The food prices seems to have softened up on the back of record kharif output and satisfactory progress in rabi sowing; and partially due to seasonal and high base effect.

In a nutshell, this is not a time to rejoice in hurry yet.

  1. Chirag says

    Nice Article Viral,
    So we can call that as an Deflation!

    1. Viral says

      Hi Chirag,

      I don’t think we can call this as deflation, as the price fall is not across the board. Moreover, the softening up of prices has hardly effected the food articles index, which is a constituent of Primary articles index. Any which way, primary articles comprise of only 20% of the WPI index.

      So, we’re still a long way to see a deflation scenario in the economy. What about the remaining 80% pricing pressures on the headline inflation, that still need to felt? :)

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