India's wholesale price index-based inflation eased to a four-month low of 1.31% in August, helped by falling costs of crude oil, steel and cement, although prices of food staples like potatoes and onions rose sharply.
August wholesale inflation was lower than the 1.85% increase anticipated by economists in a Reuters poll and down from 2.04% in July, according to government data released on Tuesday.
The country's central bank, which largely monitors headline retail inflation numbers to decide its monetary policy, is widely expected to hold on to its benchmark repo rate at its policy review from October 7-9.
Tuesday's data showed that though headline wholesale inflation cooled, prices of potato, onions and fruits in August rose between 16% and 78% from a year earlier, hit by heavy rains in some parts of the country.
Overall, food prices rose 3.26% year-on-year, compared to a 3.55% increase in the previous month. Cereal prices rose 8.44% over last year, compared to an 8.96% increase in July.
Rahul Agrawal, economist at ICRA ratings agency said that the heavy rainfall in September could delay plantation of the next crop and put pressure on headline inflation next month.
ICRA expects WPI inflation to rise to 2% in September.
Vegetable prices, however, fell 10.01% on-year from a 8.93% drop in July as the supplies improved in the markets.
India's manufacturing companies have gained after a fall in global commodity prices.
Manufactured product prices increased 1.22% year-on-year against a 1.58% rise in the previous month. Fuel and power prices fell 0.67% on-year compared with a 1.72% increase in July, data showed.
Global benchmark Brent crude prices have fallen to below $75 a barrel from over $92 a barrel in April, helping major importers like India.
Last week, data showed India's retail inflation remained below the central bank's target of 4% for the second consecutive month, but high food prices have dampened the hopes of a dovish stance in the next monetary policy meeting.
