Inflation based on wholesale prices declined marginally to 7.18 per cent in December even though rates of food items like rice, wheat, pulses and potato showed a rise.
The third successive fall in inflation may prompt the Reserve Bank of India (RBI) to cut interest rates in its policy review on January 29.
The Wholesale Price Index (WPI) was 7.24 per cent in November and 7.32 per cent in October. It was 7.74 per cent in December 2011.
Food inflation, as a category, rose to 11.16 per cent in December against 8.50 per cent in the previous month. Food articles have 14.3 per cent share in the WPI basket.
While wheat turned more expensive by 23.23 per cent in December from 23.19 per cent in November, rice became dearer by 17.10 per cent from 11.80 per cent. Potatoes were costlier by 89.08 per cent and onion by 69.24 per cent.
Milk prices declined by 5.85 per cent, while fruits were down by 5.76 per cent. Eggs, fish and meat prices too moderated to 10.18 per cent compared to 14.19 per cent in the previous month.
For the fuel and power category, inflation was 9.38 per cent compared to 10.02 per cent in November.
The rate of price rise in the manufactured products moderated to 5.04 per cent in December as against 5.41 per cent in the previous month.
Inflation for October was revised downwards to 7.32 per cent from provisional figure of 7.45 per cent.