Inflation, measured by movements in wholesale prices, dipped by 0.67 percentage points to 5.24 per cent for the week ended January 3 from 5.91 per cent in the previous week, which may result in an even softer interest rate regime.

It stood at 4.26 per cent a year ago. "We are seeing robust and healthy decline in inflation. The expectation is that inflation will come down to a still more manageable number, that is, between 3 and 4 per cent, by the end of March," economic affairs secretary Ashok Chawla said.

However, economists are more optimistic. Crisil Principal Economist D K Joshi said, "There is a possibility that the inflation rate will go down to 2 per cent by March or April."

On the possibility of policy rate cuts by the Reserve Bank, he said, "The RBI's action is independent of the week on week levels. They go by trends. But lower inflation just facilitates easing monetary policy. Interest rates will definitely come down."

Food items like fruit, vegetables, gram, barley, condiments and spices turned cheaper, as did ATF, bitumen and light diesel oil, as well as paper products, chemicals and metals.

The likely fall in prices of petroleum products in the next few days will further hasten decline in inflation. It was basically hikes in petrol, diesel and cooking gas prices in June that catapulted inflation to double-digit numbers from June.