New Delhi, Jan. 14: Inflation based on wholesale prices declined to a three-year low of 7.18 per cent in December, but it failed to provide relief to consumers as retail prices rose to cross the double-digit mark in the same month.
Wholesale price based inflation falling for the third consecutive month is expected to prompt the Reserve Bank of India to cut interest rates in its forthcoming quarterly review of monetary policy on January 29 to boost sagging growth.
The wholesale price inflation, according to the data, eased mainly on account of a fall in prices of manufacturing products and fuel and power.
However, retail inflation rose for the third successive month in December at 10.56 per cent, driven by higher prices of vegetables, edible oil, pulses and cereals.
Planning Commission deputy chairman Montek Singh Ahluwalia said, "I have seen the numbers. The decline is welcome. Still, I would like to see inflation even lower. Hopefully, it will go down further."
On whether the RBI will cut interest rates in the upcoming policy review, he said, "I never comment on the RBI policy, let's maintain some mystery about what the RBI would do."
Prime Minister's Economic Advisory Council chairman C. Rangarajan feels the RBI may lower the policy rate later this month.
"There is softening of the headline inflation. Manufacturing inflation has also come down. These indicate a situation in which the RBI can stick to policy indications that it has given a few weeks ago. Therefore, there is a possibility of making an adjustment in the policy rate downwards," he said.
The RBI, which has kept key interest rates unchanged since April 2012 on inflation concerns, had in its last policy review hinted at lowering interest rates in the January review.
The repo rate, at which the RBI lends to banks, stands at 8 per cent, while the reverse repo, at which the RBI absorbs excess liquidity through borrowings from banks, is at 7 per cent.