Food inflation remained in the negative zone for the third straight week, at (-)0.42 per cent for the week ended January 7, mainly due to fall in prices of onion and vegetables.

Food inflation, as measured by the Wholesale Price Index (WPI), was at (-) 2.90 per cent in the previous week. It was above 16 per cent in the corresponding week of 2011.

According to the official data released today, onion prices were lower steeply by 75.42 per cent year-on-year during the week under review, while potato prices were down by 23.84 per cent. Prices of wheat also fell by 3.57 per cent.

Overall, vegetables were 45.81 per cent cheaper during the week under review than in the same period last year.

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Other food products, led by protein-based items, became more expensive on an annual basis.

Pulses prices were 14.27 per cent higher during the week under review, while milk grew dearer by 11.48 per cent. Egg, meat and fish prices were up 19.64 per cent year-on-year.

Fruits also became 10.03 per cent more expensive on an annual basis, while cereal prices were up 2.26 per cent.

Inflation in the overall primary articles category stood at 2.47 per cent during the week ended January 7, against 0.51 per cent in the previous week. Primary articles have over 20 per cent weight in the wholesale price index.

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Experts feel that the decline in food inflation, along with moderation in headline inflation during December 2011, will be a major incentive for the Reserve Bank to look at the option of cuts in key interest rates in the near future.

Inflation in the non-food segment, which includes fibres and oilseeds, was recorded at 1.84 per cent for the week ended January 7 against 1.29 per cent in the previous week.Fuel and power inflation stood at 14.45 per cent, same as in the previous week.

Headline inflation, which also factors in manufactured items, fell to a two-month low of 7.47 per cent in December 2011.

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According to experts, the moderation in both overall inflation and food inflation will allow the RBI to look at the option of reversing its tight monetary policy in near future.

The RBI has hiked interest rates 13 times since March, 2010, to tame demand and curb inflation.

Finance Minister Pranab Mukherjee said last week that the moderation in food prices will help to bring down headline inflation to 6-7 per cent by March 2012.