Headline inflation, as measured by the Wholesale Price Index, had stood at 7.47% in December 2011.
It was 9.47% in January last year.
The latest numbers are the lowest since December 2009 when headline inflation was at 7.15%.
According to Siddhartha Sanyal, Chief India Economist, Barclays Capital, Mumbai "If this number stays soft going ahead and the GDP print also comes soft in February then together, there is a chance that RBI may cut rates in March than in April."
The 30-share Sensex ended at 17,849 up 76 points and the 50-share Nifty ended at 5,416 up by 26 points.
The Sensex and the Nifty reached an intra-day high of 17,890 levels and 5,428 mark, respectively.
On the global front, Asian markets ended mixed. Nikkei, Strait Times and Hang Seng closed marginally in green whereas Taiwan, Kospi and Shanghai Composite ended slightly in red.
Meanwhile, European markets have turned mixed after lower opening on debt worries.
CAC, DAX and FTSE are trading slightly lower whereas DAX is marginally up.
Back home, engineering major L&T was the top Sensex gainer, up 4%. BHEL advanced by nearly 2%.
Tata Motors zoomed 4% after the announcement of better-than-expected third quarter numbers. Tata Motors reported 40.5% rise in quarterly profit, as strong sales at its Jaguar Land Rover unit offset rising input costs.
Other Auto shares like Maruti Suzuki, Hero MotoCorp and M&M surged by nearly 3% each.
From the banking space, SBI surged by over 3% after the chairman of India's largest lender, Pratip Chaudhuri said that "the worst is over" while announcing the third quarter results.
The stock tumbled 2% yesterday post the announcement of Q3 numbers. ICICI Bank gained by almost 1%.
DLF gained by almost 2%. Realty stocks rallied on expectations that the central bank will start cutting interest rates in the coming months to prop up slowing economy.
Index heavyweight Infosys gained by over 0.5%.
However, Wipro and TCS ended in red zone.
Healthcare major Cipla was the top Sensex loser, down over 6% after reporting lower-than-expected 16% year-on-year (yoy) growth in net profit at Rs 270 crore for the third quarter ended December 31, 2011, due to increase in staff cost and rise in selling expenses.
The broader markets outperformed the benchmark indices in today's trade. BSE Midcap and Smallcap indices gained between 0.1-1.15%.
For Rediff Realtime News on Sensex, click here
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