Inflation slipped to 0.13 per cent for the week ended May 30, the lowest ever in over three decade, a development that could hasten the process of rate cuts by the banks.
While the wholesale price index stood at 0.48 per cent in the previous week, the rate of price rise was 9.32 per cent during the corresponding week a year ago.
Even though inflation declined during the week, the prices of essential food items like vegetables, eggs, pulses and spices became more expensive.
This is the 13th week in succession when inflation stood below one per cent. Analysts feel that inflation could slip into negative territory in the days to come.
"We may see inflation in the negative territory which may continue till October with the lowest inflation level at minus 1.5 per cent in July," said HDFC Bank economist Jyotinder Kaur.
In a bid to spur economic growth, finance minister Pranab Mukherjee prodded public sector lenders to provide credit at reasonable rates.
In his address to chief executives of the public sector banks on Wednesday, Mukherjee said, "As a financial intermediary the banks have to stand by to provide credit at reasonable rates."
The finance minister had said cut in key rates by RBI is not getting adequately reflected in the reduction of prime lending rates by banks.
Most of the public sector banks, including State Bank of India, Bank of Baroda, Union Bank, Bank of Maharashtra and Canara Bank have hinted at cutting rates in couple of weeks.
At the same time easing inflation has raised expectations of policy rate cut by RBI in the first quarterly review in July.
"We expect RBI to cut rates in July by 25 basis points," Kaur said.
However, NCAER senior fellow Rajesh Shukla said as the prices of primary articles are still high, it is not having much effect on the common man.
During the week, prices of eggs went up by 11 per cent, mutton by 3 per cent, fruit and vegetables by 2 per cent.
At the same time prices of ghee were expensive by 4 per cent and khandsari by 2 per cent. However, prices of coffee declined by 4 per cent and bajra by 3 per cent.
Among manufactured products, prices of texturised yarn eased by 2 per cent, decorative laminates by whopping 11 per cent and electrical generators by 6 per cent.
Inflation for the week ended April 4 was revised upwards to 0.83 per cent from 0.18 per cent, as estimated provisionally.