Inflation for July slid back in single-digit to 9.97 per cent after a gap

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of five months, on account of moderating food and non-food prices, raising hopes that it would decline further in the coming months.

The inflation based on wholesale prices had entered double digits in February and declined 0.58 per cent last month, from 10.55 per cent in June, as the prices of potatoes, onions and cement moderated.

Buoyed by the decline, Finance Minister Pranab Mukherjee expressed the hope that the drop in prices would continue, while Planning Commission Deputy Chairman Montek Singh Ahluwalia said inflation would reach 6 per cent by December.

"Of course, it (inflation) will moderate", Mukherjee told reporters.

He pointed out that besides seasonal factors and the base effect, the monetary policy steps taken by the Reserve Bank were having impact on inflation.

"Policy rates had some impact but there are also base factors", the Minister said.

Besides, he added, seasonal factors in food items like fruits, vegetables and milk were also helping moderate the rate of price rise.

Meanwhile, Ahluwalia said that although July inflation at 9.7 per cent was "still too high ... I am glad that it is down below the double digit range... It will go to 6 per cent by December".

Referring to supply side problems, he said, "the monsoon as a whole, except in some part of the country, has been very good. We don't see supply side problem in agricultural commodities."

The inflation has come down mainly on account of year-on-year decline in prices of essential items like potato (-44 per cent), vegetables (-14.50 per cent), cement (-8.36), onion (-6.85 per cent) and edible oil (-0.34 per cent) in July.

"The drop in (wholesale price) index was lower than our expectation. We believe that overall inflation will be moderate in both August and September and food inflation and manufacturing figures will remain subdued due to seasonality", Axis Bank chief economist Saugata Roy said.

For the year as a whole, he said, "the WPI will be in the range of 7-8 per cent and the probability is more on the lower side... May be around 7.1 per cent or 7.2 per cent."

As regards the monetary policy, Roy said, the RBI would continue with tightening of the money supply to tame the inflationary pressure.

"However, we cannot be certain if the RBI will go for any more hike in the short term lending and borrowing rates in its September mid-quarterly review, although the chances are high", he added.

The RBI has raised several times its short-term lending (repo) and borrowing (reverse-repo) rates in the recent months to check rising inflation.