Cut in prices of petrol, diesel and cooking gas will ease the price situation and pull down inflation to 2 per cent by March end, said global financial firm Citi.
"Given that petrol, diesel and LPG together have a weight of 4.75 per cent in the whole price index, the fuel price hike would have a 40 bps impact on inflation. This will result in headline inflation falling to 2 per cent by end-March," Citi said in its global market report.
Moreover, it added, "the negative patch in WPI that was expected in June-September quarter could occur earlier".
Citi had earlier projected that inflation would come down to 3 per cent by March end, the same as was indicated by the Reserve Bank of India in its third quarterly review of the monetary policy.
The government yesterday slashed petrol prices by Rs 5 a litre, diesel by Rs 2 per litre and cooking gas (LPG) by Rs 25 per cylinder. The reduction, effective from last midnight, will help further ease inflationary pressures.
Inflation today rose to 5.64 per cent for the week ended January 17, from 5.60 per cent in the previous week. It had declined for the tenth consecutive week to 5.24 per cent for the week ended January 3.
Having touched a peak of 12.91 per cent in August last year, inflation has continued its downward march and dipped below the double-digit mark in November.
Inflation during 2008 had shot up after the government decided to raise fuel prices in June following spike in prices of crude oil in the international market.
The per barrel crude oil prices in the international market, which soared to about $147 in July has now dipped to around $40 a barrel.