The annual rate of inflation based on the wholesale price index fell to another 13-month low at 3.92 per cent (provisional) for the week ended 7 February against 4.39 per cent (provisional) for the previous week (ended 31 January), data released by the commerce ministry showed.
The wholesale index fell 0.2 per cent to 228.0 in the week ended 7 February from 228.4 in the previous week – a decline of 0.47 percentage points from the inflation rate in the previous week - mainly due to lower prices of textiles, leather products and metals, the data showed.
Prices of most manufactured items such as sugar, imported edible oil and textile items such as cotton yarn got cheaper while food and fuel items showed a mixed trend.
Prices of some food items like pulses, fruits and vegetables and maize have fallen during the week though prices of tea declined.
Fuel items too became expensive during the week on account of higher prices of naphtha and furnace oil, which went up by 10 per cent and 5 per cent respectively, despite fall in prices of crude oil.
Chemical products, iron and steel and cables, however, became cheaper.
With the wholesale price index falling for the fourth straight week, India's inflation rate has now shrunk to a third from levels above 14 per cent in the middle of 2008.
India's economy, the third-largest in Asia, may grow at 7.1% in the current financial year ending March 31, slowing from a 9% expansion last year.
The Reserve bank of India bank has cut its key lending rates in successive steps beginning October 2008 since the inflation rate started declining.
Its key repurchase rate now stands reduced by 3.5 percentage points and the cash reserve ratio, or the proportion of deposits banks must set aside as cash, by 4 percentage points. The reverse repurchase rate, or the key borrowing rate, has been lowered by 2 percentage points over the same period.
Analysts expect the central bank to reduce lending rates further in order to revive economic activity.
Industrial output growth in the country had shrunk 2 per cent in December, the second contraction in three months, reflecting deceleration in economic activity.