Inflation declined to 5.95 per cent during the week ended on January 13 from a two-year high of 6.12 per cent in the previous week, primarily due to decline in prices of food products.
Even though inflation fell compared to the previous week, it is still higher than the threshold of RBI's projection of of 5-5.5 per cent for this fiscal.
At 5.95 per cent, inflation is the highest this fiscal. This would put pressure on the central bank to hike interest rates in its credit policy review slated for January 31.
"Inflation is the main problem... Keep that in mind," Finance Minister P Chidambaram had said, giving rationale for his argument as to why liquidity would not be released in the system through cut in Statutory Liquidity Ratio.
According to government estimates released on Thursday, Inflation declined despite the wholesale prices index rising by 0.05 per cent to 208.3 points for the week ended on January 13 against 208.2 points in the previous week.
This is so because inflation data is based on variation of the index over a year period. Index in a year ago period stood at 196.6 points and inflation at 4.19 per cent.
Cereals, pulses, fruits, vegetables became cheaper. However, there is variation within these product categories. Urad, whose trading has been suspended in futures market, declined. However, the decision to ban futures trading came on January 23, while the inflation data pertained to January 13.
Prices of other products such as edible oil and cement, on which customs duty has been slashed, also declined. However, metals showed a mixed trend. The exact effect of these measures would be known only in a fortnight.