Indian food inflation turns negative, signaling possible rate cut

Food prices fell in India for the first time in more than a year during the week ended December 24, setting the stage for the central bank to ease interest rates and stimulate India's flagging economic growth rate.

According to official data released on Thursday, food inflation for the week ended December 24 turned negative to (-) 3.36 percent, India Today reported. The overall inflation numbers for December will be available next week.

Food inflation stood at 0.42 per cent in the previous week. It was 21 per cent in the corresponding week of 2010, the paper said.

The reversal prompted the prime minister's economic advisory council to recommend a rate cut to the central bank, as economists now expect inflation to drop below 7 percent by the end of March, the paper said.

Food prices were the principal concern, due to the damaging effect on the poor.

Elsewhere, Finance Minister Pranab Mukherhee said the likely reversal of the tight monetary policy in the economy will boost demand and spur a comeback in India's flagging economic growth, according to the Economic Times.

"Both investment demand and consumption demand should improve as the monetary policy becomes accommodative with inflation declining to more acceptable levels. If external factors also contribute favourably, we should rapidly recover the loss in growth," Mukherjee said.

The government has had to reduce its growth forecast for this year to 7.5 percent from an earlier estimate of 9 percent, but many others have been predicting that it may fall even lower.