India's food inflation eased sharply in the year to December 10 on lower prices of rice, cereals and vegetables and benefiting from a higher statistical base a year ago, indicating sticky headline inflation could be moderating.

Food

Food

The rate of food inflation fell sharply to 1.81 percent in the year to December 10, from an annual 4.35 percent rise in the previous week, government data showed on Thursday, while fuel inflation remained unchanged at 15.24 percent in the latest week compared with the prior week.

The sharp slide in food prices was led by more than 0.5 percent fall in prices of rice and vegetables, particularly onions. Price pressures eased across the board as prices of primary articles fell by 0.20 percent while prices of non-food articles slid almost 0.6 percent.

Food inflation is likely to keep moderating, as we said in our August inflation report, for the whole of December, primarily due to the base effect, said Jay Shankar, chief economist and director with Religare Capital Markets.

Headline inflation has barely budged from above 9 percent for a year now, driven mainly by high food inflation, so any moderation in food inflation will give relief from price pressures to a beleaguered government and the central bank, which is under increasing pressure to prop up faltering growth.

The Reserve Bank of India, which had raised rates 13 times since March 2010, kept policy rates on hold at its review last Friday, sending a strong signal that its next move is likely to be an easing of monetary policy as risks to growth increase.

The primary articles price index rose 3.78 percent, compared with an annual rise of 5.48 percent in the previous week.