Inflation might dip below the two per cent level by the end of the current fiscal due to slackening demand and sharp decline in commodity and manufactured goods prices, say economists.
"I expect Inflation to drop sharply to below 2 per cent by March due to the sharp decline in manufactured goods prices and commodity prices ," HDFC Bank Chief Economist Abheek Barua said.
The inflation dropped significantly for the sixth consecutive week to 6.84 per cent for the week ended December 6, the lowest in nine months, after rising close to 13 per cent in the month of August.
Barua expects it to further decline to 6.48 per cent for the week ended December 13 and sees more rate cuts by the RBI before its January policy. "I expect a 100 basis point cut in the repo and reverse repo rates," he added.
Axis Bank Economist Saugata Bhattacharya also believe that due to the falling demand, except that of primary articles, inflation might drop to 2 per cent by the end of fiscal year 2008-09.
Echoing a similar view, Crisil Principal Economist DK Joshi said, "By March, I expect the rate of inflation may come down to 2-3 per cent due to the slackening demand and the base effect."
He added that the sharp decline of commodity prices is leading to the fall of manufactured good prices.
In addition to the fall in commodity prices, the decision of the government to reduce prices of petrol and diesel by Rs 5 per litre and Rs 2 per litre, respectively, and the December 7 stimulus package, that envisages 4 per cent cut in excise duty, will have a cascading effect on prices in the coming months.