Inflation for the week ended August 16 edged down to 12.40 per cent, from 12.63 per cent a week earlier, mostly due to prices of primary articles remaining unchanged and a drop in fuel and power prices.

Welcoming the drop in inflation, the Finance Ministry said these are early signs of moderation in inflation. The Wholesale Price Index fell for the first time in 28 weeks. The reduction in inflation could be a key trigger for markets, said Kotak Securities.

With in the inflation component, prices of spices were up 2 per cent, tea 1 per cent, while that of textiles increased by 0.3 per cent. Prices of manufactured products went up by 0.1 per cent.

Chief Economic Advisor Arvind Virmani said on Wednesday that inflation is likely to come down to 5-6 per cent over the next 12 months.  However, he said that the Indian economy is likely to moderate, with growth at 7.75-8.75 per cent this fiscal, primarily due to a fall in industrial growth and volatility in oil prices. HSBC also expects the GDP growth for FY’09 to slow down to 7.5 per cent.

Inflation for the week ended June 21 revised to 11.91 per cent.