Consumer price inflation based on the consumer price index declined to a two-year low of 8.79 per cent in January 2014, offering some relief to the ruling UPA-II in an election year.
The decline in consumer price inflation to 9.90 per cent, from 12.16 per cent in December 2013, was aided by a sharp 13 per cent fall in vegetable prices.
However, the gains on the price front could be offset by a third straight fall in industrial output in December, which offered little hope for an economy that is growing at its slowest pace in a decade.
A decline in food prices helped bring down the overall consumer price inflation to 8.79 per cent in January 2014, the lowest since January last year.
Core retail inflation, however, remained unchanged at around 8 per cent in January 2014.
Consumer price inflation for January 2014 stood at 8.79 per cent compared to 9.87 per cent in the previous month (December 2013), provisional figures released by the Central Statics Office (CSO) showed.
The corresponding provisional inflation rates for rural and urban areas stood at 9.43 per cent and 8.09 per cent, respectively, in January 2014, compared to levels of 10.49 per cent and 9.11 per cent, respectively, in December 2013.
A reversal in the rising trend of inflation could help the Reserve Bank of India loosen its tight money stance. RBI will next review rates in April.
Meanwhile, a committee set up by the RBI to set inflation ceiling has proposed setting a long-term retail inflation target of 4 per cent, plus or minus 2 per cent.
In the intermediate term, it proposed the goal would be to bring it down to 8 per cent by January 2015 and to 6 per cent by January 2016.
A surge in vegetable prices was one of the principal reasons for the spike in inflation in India.
The prices of essential items such as onions, which had shot up by up to 190 per cent in late 2013, has now fallen by more than 85 per cent.