The rate, measured by wholesale prices, eased for the fourth straight week and was lower by 0.44 percentage points in the seven-day period ending November 22 from the previous week.
However, inflation for food articles grew by 10.43 per cent from 9.93 per cent a week ago. Items like coffee, sea fish, masur, rice, eggs, arhar, fruits, vegetables and gram cost more in the week under review.
A sharp fall in global crude prices, which had touched a high of USD 147 a barrel in July and is now ruling near USD 45, and duty cuts on ATF (jet fuel) led to a huge decline in prices of industrial fuels in India.
The drop in inflation numbers will make it easier for RBI to cut key short-term rates - possibly this weekend when the government is expected to unveil a stimulus package for the housing, auto and export sectors.
The stock market rallied on these expectations and advanced by 482 points to close above the 9,200-points mark.
Crisil Principal Economist D K Joshi said, "Inflation has fallen sharply than our expectations, led by fuel group and manufactured goods prices. This gives RBI more leeway for interest rate cut and I expect agrressive reduction in both repo and reverse repo rate soon."