Inflation plunges to historic low of 0.44 percent; deflation feared, rate cuts seen

According to a government statement released by the Finance Ministry, this is the steepest drop since November 2008.

"In the last 30 years, there is no record of inflation falling this low since 1977-78," the statement said.

Commodity group-wise, among the primary articles, the inflation rate declined to 4.4 percent as against the previous week. Among food articles, inflation fell to 7.4 percent after having been stable at 8.3 percent in the previous two weeks while among non-food articles, inflation decelerated to (-) 1.7 percent compared to 1.3 percent last week.

Among manufactured products, the inflation rate eased to 1.3 percent as against the previous week while in fuel and power group, inflation clocked (-) 6 percent versus (-) 5.1 percent in the earlier week.

The sharp fall in inflation rate has triggered renewed fears of deflation, prompting market analysts to claim that the latest inflation data would open the way for the Reserve Bank of India (RBI) to cut interest rates further to lower the cost of credit for the corporate sector and push demand.

According to Shubhada Rao, chief economist at Munbai-based Yes Bank, "The dramatic decline in this week's inflation number is essentially a reflection of a very strong base effect."