NEW DELHI: Wholesale prices fell the most in five-and-a-half years in January as decline in oil and some food items resulted in a negative inflation or deflation of 0.39% for the month, raising hopes of rate cut by RBI.

This is the second time in three months that the wholesale price index has entered negative territory, as the government on Monday also revised downwards the inflation number for November to minus 0.17%, from zero earlier. Inflation measured on wholesale price index (WPI) was at 0.11% in December.

Although the prices of certain protein-rich items and wheat declined during the month, the overall food inflation was at a six-month-high of 8%, according to the government data released on Monday. Last time the inflation had touched this low level was in June 2009 when it was at -0.4%.

RBI governor Raghuram Rajan on January 15 reduced interest rates ahead of the scheduled monetary policy review and it is expected that he might announce another cut after Budget in the wake of significant improvement in the inflation situation. The next review is due on April 7. Inflation in ‘fuel and power segment’ was negative at -10.69% in January, while it was 1.1% in manufactured products.

The contraction in WPI inflation for petrol was steeper at 17.1% in January from 11.96% in December. Similarly, the rate of decline in diesel prices last month was higher than in the previous month.

“Given the continuing trend of moderate inflation both at the wholesale and retail level and the fact that a durable recovery in the industrial sector is out of sight, we hope that the central bank would continue with the policy rate cut cycle after the forthcoming Budget,” Ficci president Jyotsna Suri said.

India Inc urged the RBI to take full advantage of the benign price rise situation by slashing interest rates in a bid to boost demand and revive industrial growth. “Full advantage of the low pricing situation can be taken only if interest rates are reduced by at least 100 basis points and industrial growth revived so that the investment cycle can be revived,” Assocham president Rana Kapoor said.

PHD Chamber president Alok B Shriram said inflation in the negative trajectory will be demand inducing and a major relief for the manufacturers.