After reaching double digits around the middle of 2012, headline inflation moderated in the latter part of the year, and eased further to around 5½ per cent in May 2013. The slowdown in inflation was largely associated with a steady fall in food price inflation, especially as softening global grain and cereal prices eased the inflationary impetus from abroad.
The removal of Value Added Tax (VAT) on selected non-luxury food items in mid-November 2012 had a one-off impact on reducing food price inflation. Core inflation, which excludes food prices, remains low and stable, indicative of relatively subdued demand pressures. Buoyant liquidity conditions, poor credit appetite and the cut in the repo rate have pushed interest rates to historical lows.