Driven by softening prices of fuel and food items, the WPI inflation cooled to a five year low of 1.77 percent in October raising hopes of rate cut by the Reserve Bank next month to boost economic growth.
The decline in Wholesale Price Index (WPI) based inflation from 2.38 percent in September, follows fall in retail inflation which hit a record low of 5.52 percent in October.
The WPI inflation, which fell for the fifth month in a row, was at 7.24 percent in October 2013.
As per the official data released on Friday, food inflation fell to a nearly two-and-half year low of 2.7 percent. Food inflation is on decline since May.
Inflation in the fuel and power segment which include LPG, petrol and diesel declined to 0.43 percent as compared to price rise of 1.33 percent in September.
With the international crude prices declining further to a four year low of USD 77 a barrel, the inflation in fuel segment is likely to soften in the coming days.
Encouraged by the decline in inflation, India Inc has stepped up its demand for a cut in interest rates by the RBI in next bi-monthly monetary policy on 2nd December.
“Alleviated inflation creates room for a more accommodative stance from the central bank in terms of rate reduction in the policy to be announced next month,” trade body Ficci said.
Industry has been demanding a rate cut to boost growth which had slumped to 4.7 percent in 2013-14.
In the current fiscal, the growth is estimated to be between 5.4-5.9 percent. It will, however, be much below the potential growth rate of 8-9 percent.
The RBI, which factors in retail inflation while formulating its monetary policy, has maintained status quo in interest rate since January.
Commenting on inflation, ICRA Senior Economist Aditi Nayar said: “Notwithstanding the sharper-than-expected fall in the WPI, we expect the RBI to remain on hold in the next two policy meetings”.
As per the WPI data, the rate of price rise in onion contracted 59.77 percent in October as compared to a contraction of 58.12 percent in September.
In case of vegetables, the contraction was 19.61 percent, while in protein rich items of egg, meat and fish it was 2.58 percent in October.
Inflation in potato stood at 82.11 percent, against 90.23 percent in September.
Inflation in manufactured products like sugar, edible oils, beverages and cement, fell to 2.43 percent in October as against 2.84 percent in the previous month.
The August WPI inflation was revised higher to 3.85 percent from 3.74 percent earlier, the data said.
Nayar said the decline in the WPI is led by falling global commodity prices, a favourable base effect and diesel deregulation, and is not indicative of a sharp correction in domestic demand conditions.
“Although headline WPI is likely to remain at sub 3 per cent level in the remainder of FY15, food inflation is expected to rear up as the base effect fades away,” Nayar added.