India's inflation eases to three-year low, but remains stubbornly high

India's stubbornly high inflation eased to a three-year low of 6.6 per cent in January, a glimmer of good economic news for the country.

India's stubbornly high inflation eased to a three-year low of 6.6 per cent in January, a glimmer of good economic news that adds to expectations the central bank will further reduce interest rates to boost slowing growth.

Wholesale price inflation released Thursday was down from 7.2 per cent year-on-year in December.

India's economy is expanding at its slowest pace in a decade, with gross domestic product predicted to grow as little 5 per cent in the fiscal year ending in March. That's down from 9 per cent in early 2011, and it is paired with rising budget and current account deficits.

Worrisomely high inflation has been the main reason that the Reserve Bank of India has hesitated to cut interest rates to stimulate investment and spending.

The easing of inflation pressure - the index has now inched down for four months - gives the central bank more scope to lower borrowing costs but many analysts say the cuts won't be large as inflation is still higher than the RBI would like. The bank has pledged to bring wholesale inflation down to below 4.5 per cent.

Manufactured goods led the drop in overall inflation, with price rises slowing to 4.8 per cent in January over a year earlier. Fuel and power costs were up by 7.1 per cent, but that was down from 9.4 per cent in December. Food prices, which are more volatile, recorded some sharp increases. Pulses were up 16.9 per cent and potatoes surged 79.1 per cent.

* AP