NEW DELHI, Sept 21: India’s annual inflation rate has fallen to a near five-year low, official data on Friday showed, but soaring global crude prices threaten to push the cost-of-living higher, economists said.

Inflation slowed to 3.32 per cent for the week ended September 8 from 3.52 for the previous week, according to the wholesale price index, India’s closest watched cost-of-living monitor. It was the lowest level since December 2002.

But economists said they expected no early easing of interest rates, which are riding at five-year highs amid worries that record global oil prices could trigger a rise in state-set domestic fuel prices.

“You’d think rates would fall but I don’t see the Reserve Bank doing that now with crude prices heading north and food prices hardening,” said HDFC chief economist Abheek Barua.

The drop in inflation was driven by lower prices of vegetables, minerals and other items. Acceleration in prices a year ago also helped make the fall look sharper.Inflation stood at 5.22 per cent in the same week a year earlier.

Economists believe there could be a rise soon in government-set oil retail prices to staunch heavy losses at state-owned energy firms, a move that would boost inflation, although opposition from the ruling Congress party’s communist allies could delay such a step.

“I think we are seeing inflation bottoming out simply because rising global price increases have not been passed on,” said D.K. Joshi, principle economist at leading credit rating agency Crisil.

Oil prices hit new records this week, rising above $84 a barrel.

India imports about 70 per cent of its crude oil needs.

“Although the agriculture situation appears good, the pressure on food prices is bound to remain with global food grain prices at all-time highs. We are going to see inflation inching up,” Joshi said.

The annual rate marked the fourth straight week that inflation was below the bank’s medium-term target of 4-4.5pc. The rate is also below the bank’s current year target of close to 5pc.

Joshi said he expected the Reserve Bank of India to leave benchmark rates unchanged at its next policy meeting in late October.

Economists said with the rupee trading at near nine-year highs against the dollar, the bank could even move to suck out liquidity caused by massive foreign currency inflows.

The rupee firmed to 39.87 to the dollar on Friday after breaking through the crucial 40-rupee barrier a day earlier when it closed at 39.91.

The currency’s sharp rise was triggered by heavy inflows into the Indian equity market after the US Federal Reserve cut its base federal funds rate by half a point to 4.75 per cent to ease a credit crunch. —AFP