Headline inflation fell to an over two-year low of 6.55% in January on cheaper food items, which may prompt the Reserve Bank to cut policy rates in the coming months.
Headline inflation, as measured by the Wholesale Price Index (WPI), had stood at 7.47% in December 2011. It was 9.47% in January last year.
The latest numbers are the lowest since December 2009 when headline inflation was at 7.15%.
On inflation, Finance Minister Pranab Mukherjee said that the rate of price rise was still not at an acceptable level and should fall further.
"I think it (inflation) should be further reduced since it is still not at acceptable level. I do hope (further) moderation will come," Mukherjee told reporters.
As per the official data released today, food inflation was (-) 0.52% in January against 0.74% in December.
Vegetables were cheaper by 43.13% and wheat by 3.48% on an annual basis. Potato and onion prices also fell by 23.15% and 75.57% year-on-year in January.
Food articles have 14.3% share in the WPI basket and experts attributed the moderation in inflation to cheaper food articles.
Prices of manufactured items, which have a weight of around 65% in the WPI basket, went up by 6.49% year-on-year in January, as against 7.41% in the previous month.
Inflation in manufactured items has been high since February 2011, when it crossed the 6% mark.
Among manufactured items, iron and semis grew dearer by 18.46% and edible oil prices rose by 9.59%. The cost of tobacco products moved up by 9.36% and basic metals became 11.99% expensive year-on-year.
Inflation in overall primary articles stood at 2.25% in January, compared to 3.07% in December, as per today's data.
Non-food primary articles, which include fibres and oilseeds also showed moderation to 0.55% in January, compared to 1.48% in the previous month.
Inflation in the fuel and power segment stood at 14.21% on an annual basis in January, against 14.91% in the previous month.
Meanwhile, inflation for November 2011 has been revised upwards to 9.46% from provisional estimate of 9.11%.
Experts said that the moderation in inflation will give more leeway to RBI to consider cuts in interest rates in the next few months.
Headline inflation was near double digit for most of 2010 and 2011. The apex bank hiked key policy rates 13 times, totalling 350 basis points between March 2010 and October 2011, to tame inflation.
India Inc has said the string of rate hikes, which have raised the cost of borrowing, have acted as a dampener to fresh investment and hindered growth.
As per the advanced estimates, Indian economy is projected to grow by 6.9% this fiscal, lowest in three years, on account of slowdown in manufacturing and agriculture.
