With food items such as vegetables becoming cheaper, wholesale price index (WPI) based inflation eased to a five-month low of 2.17 per cent in May.
It was much higher at 3.85 per cent in April and had contracted by 0.9 per cent in May last year.
Official data released on Wednesday revealed that the WPI inflation in food articles contracted at an even sharper pace by 2.27 per cent in May this year as against an increase of 1.16 per cent in April.
The data is likely to increase calls for a cut in policy rates by the Reserve Bank of India to help boost investments, even though it does not target WPI inflation but instead benchmarks rates to retail price rise.
The Monetary Policy Committee in the second bi-monthly monetary policy review on June 6 and 7 had left lending rates unchanged while reducing the statutory liquidity ratio by 0.5 per cent.
According to the WPI data, potato prices at the farm gate fell by over 44 per cent in May as compared to a year ago while pulses became cheaper by 19.7 per cent in the same period. Vegetable prices also contracted by 18.5 per cent between May 2017 and May 2016 while onion became cheaper by 12.86 per cent in the period under review.
Food index eases
Even the new food index cooled from 2.9 per cent in April to 0.15 per cent in May.
Released as part of the updated series of WPI, the food index consists of food articles from primary articles group and food product from manufactured products group.
Meanwhile, WPI inflation in fuel and power increased by 11.69 per cent in May although it was lower than the 18.52 per cent rise in April. It had dipped by over 14 per cent in May last year.
Manufactured products also continued to witness weaker inflation at 2.55 per cent in May as against 2.66 per cent in April.
Analysts said they expect headline inflation to moderate further in coming months unless there is an uptick in the global oil prices.
“We are expecting the WPI inflation to remain in the range of 3 per cent for next couple of months,” said CARE Ratings.
“The case for supporting growth is getting stronger and we hope that the RBI will take a relook into its monetary policy stance in the light of these new numbers,” said Pankaj Patel, President, FICCI .