But most economists, while noting the trend towards lower inflation, were cautious in making forecasts about the imminent demise of inflation. Former RBI deputy governor SS Tarapore told The Financial Express that the lower inflation rate was partly the result of sound monetary management. "But, looking at year-on-year changes, one must take into account the statistical phenomenon that it is much easier to contain the inflation rate to a lower rate when the previous year's figure is relatively higher. Looking to the future, if the rate a year hence is higher than the present rate of three per cent, it does not reflect a poor macromanagement."

Tarapore felt that this would be the right time to move towards inflation rate targeting. "It is always desirable to move into inflation targeting when the rates have already fallen," he said. He, however, did not think deflation was a possibility despite declining inflation rates. "I don't think we are anywhere near a sustained and continuing absolute decline in prices," he said.

Economist BB Bhattacharya, head of the development planning cell of Institute of Economic Growth (IEG) in Delhi, said that a three per cent WPI rate is not absolutely low though below normal. The WPI has gone below three per cent on some occasions in the past, the last time in 1985.

Besides, there is no sign of a deceleration in the consumer price index. It is likely to remain above seven-eight per cent in the next couple of months.

Says Bhattacharya: "Three per cent inflation is only for a week; the average inflation for the year might be five to six per cent. One cannot base a forecast on the basis of a week.A stretch of period has to be taken into account for that. Last year the rabi was bad and prices were high. So comparatively this year the price rise is low."

Nitish Sengupta, a former member of the Planning Commission and currently director general of the International Management Institute (IMI), said that the WPI downtrend was primarily the result of a bumper harvest and very low vegetable prices. "Last year the prices shot up and the government failed to take corrective measures. The forecasting too was bad, but the prices came down after the government took corrective steps. This year the government's record on the price front is better. In future, much will depend on the monsoon-though dependence on the monsoon has comparatively come down because of tubewells. The future inflation rate is, however, difficult to predict."

The sharp fall in the inflation rate has been helped by the fact that prices of manufactured products and oil have also remained stable this year due to a slackness in demand.

Therate of increase in prices recorded in the week to June 12 is the lowest since the 2.97 per cent recorded in November 1985. During the week under review, the inflation rate fell by 0.53 percentage points to 3.00 per cent (provisional) compared 3.53 per cent (p) in the previous week and 7.15 per cent in the corresponding week of last year.

Finance ministry sources said with a normal monsoon forecast in the current year, the general price level was likely to remain stable in the coming months.

Between January and June this year, rate of increase in the prices of primary food articles has come down from about 10.5 per cent to 5.28 per cent now.

The rate of increase in prices of manufactured products during the first half of 1999 has remained stable in the range of 3.5-2.25 per cent.

In the current week, the overall index declined by 0.2 per cent to 356.8 (provisional) from 357.5 (p) last week. The overall index in the corresponding week of last year was at 346.4.

The overall index declined during theweek mainly on account of a fall in index for primary food articles compared to the previous week. Commodities whose prices fluctuated significantly during the reference week were; tea and fruits (down six per cent each), barley (up four per cent) and gingelly oil (up five per cent).

Meanwhile, the final index for the week ended April 17 (the latest available) stood at 354.9 compared to 355.5 on the provisional index during the week. The inflation rate based on the final index during the week was 4.05 per cent as against 4.08 per cent on the provisional index.

Compared to wholesale prices, inflation based on the consumer price index for urban non-manual employees was at 7.5 per cent in May.

During the reference week, the index for primary articles declined by 0.6 per cent to 382.2 from 384.5 due to the lower index for food articles.

The food articles index fell by one per cent to 448.1 from 452.5 due to cheaper tea and fruits (six per cent each), jowar and poultry chicken (two per cent each) and gramand arhar and mutton (one per cent each).

However, prices of barley (four per cent), milk (two per cent) and wheat, bajra, maize, moong and vegetables (one per cent each) were costlier during the week. The other sub-group from primary articles, non-food articles rose marginally by 0.1 per cent to 372.4 from 372.2 on higher prices of soyabean (three per cent), and raw jute, raw tobacco, mesta, copra and linseed (one per cent each). Prices of raw silk and rape and mustardseed (two per cent each) became cheaper during the week.

The index for fuel, power, light and lubricants remained unchanged for the seventh consecutive week at 390.5.