December CPI fuel, light inflation came in at 4.54% vs 7.39% in November. Vegetable inflation also fell by -16.14% vs -15.59% in November.
India's retail inflation hit an 18-month low, rising 2.19 percent in December as compared with 2.3 percent in November due to cheaper fuel and food items, data released by the government showed.
Retail inflation, measured by Consumer Price Index (CPI) grew 5.2 percent in December, 2017.
CPI is the main price gauge that the Reserve Bank of India (RBI) tracks. December’s data is an indication that inflation, which is little over 2 percent, is very close to the central bank’s lower tolerance level of inflation at 2 percent.
The central bank last month trimmed H2FY19 (October-March) inflation forecast to 2.7-3.2 percent from 3.9-4.5 percent earlier. It pegged H1 FY20 (April-September) inflation at 3.8-4.2 percent.
As per minutes of the Monetary Policy Committee meeting held on December 5, former RBI Governor Urjit Patel said that broad-based weakening of food prices and the sharp decline in international crude oil prices imparts a downward bias to the headline inflation trajectory going forward.
However, he also acknowledged that there has been a broad-based increase in inflation in the non-food group.
Led by deflation in food items, softening crude oil prices and relatively stable domestic currency, the central bank kept key policy rates unchanged last month.
"Going forward we expect further downside in our average inflation projection of 4% in FY 19, closer to 3.5- 3.7 percent band. This paves way for the MPC (monetary policy committee) to not just change its stance to neutral but also mull over a possible rate cut. The inflation trajectory looks below 4 percent over the next quarter," said Shubhada Rao, Chief Economist, Yes Bank.
Consumer food price index witnessed de-growth at 2.51 percent in December from (-) 2.61 percent in November.
Among food and beverages, prices of fruits, eggs, vegetables, pulses and sugar fell during December.
Prices of vegetables witnessed a negative growth of (-) 16.14 percent versus (-) 15.59 percent a month ago.
Similarly, pulses continued witness deflation and contracted (-) 7.13 percent in December from (-) 9.22 percent a month ago and that of sugar witnessed a negative growth of 9.22 percent as compared with (-) 9.02 percent in November.
Fuel and light inflation was 4.54 percent in December compared to 7.39 percent in November, while housing inflation was 5.32 percent versus 5.99 percent a month ago.
"The key driver for decline in CPI inflation was crude oil prices as Indian crude basket declined to USD 57.8 per bbl in December, 2018 from USD 65.4 per bbl in November, 2018. The rupee too appreciated to INR 70.72 per USD in December 2018 from INR 71.79 per USD in November 2018, helping fuel and light inflation to fall to 18-month low and transport and communication inflation to nine-month low," said Sunil Sinha, Principal Economist, India Ratings.
According to Sinha, food and oil prices continue to remain key risks to inflation."Crude oil price has once again increased to high fifties in January 2019 from low fifties in December 2018 and rupee has depreciated vis-à-vis USD in January 2019," he added.