India's wholesale price index (WPI)- based inflation in June fell to 5.43 percent from 6.01 percent in May, helped by slower increases in food and fuel prices, government data showed on Monday.
However, the April WPI data has been revised higher to 5.55 percent from 5.20 percent which resulted in market selling off the gains made from positive June WPI news.
Prime Minister Narendra Modi, elected in May amid anger over persistently high inflation, particularly food inflation, has ordered a crackdown on hoarding to hold down food prices and set limits on the export of staples, such as onions and potatoes.
While those measures helped cool food inflation to 8.14 percent in June from 9.50 percent the previous month, vegetable prices still recorded a double-digit gain during the month.
The core inflation for the month of June too spiked to 3.9 percent versus 3.8 percent month-on-month that killed the initial euphoria.
WPI is based on the wholesale price of a few relevant commodities of over 240 commodities available.
Food articles inflation slipped to 8.14 percent from 9.50 percent and primary articles inflation dropped to 6.84 percent versus 8.58 percent but manufactured products inflation increased marginally to 3.61 percent versus 3.55 percent month-on-month.
Adding to inflationary worries are prospects of a first drought in five years and turmoil in Iraq, which have increased the risk of a run-up in food and fuel prices.
Weak rainfall in India since the monsoon season started last month has already driven up prices of basic food items, such as milk, potatoes and tomatoes and could further delay a decision by the Reserve Bank of India (RBI) to cut interest rates and ease the flow of credit to the economy.
RBI Governor Raghuram Rajan held benchmark interest rates at 8 percent at the June policy meeting. He has raised rates three times since taking charge last September. The next policy review is due on Aug. 5.
The CPI number, which will be released later in the day, is expected to soften to 7.45 percent versus 8.28 percent month-on- month.