Inflation based on movement in the Wholesale Price Index (WPI) came down to 4.68 percent in February, from 7.28 percent a year ago. It was 5.05 percent in January 2014.
"Need to watch inflation carefully... Happy that overall inflation is coming down," Finance Minister P Chidambaram said while expressing satisfaction over improvement in the price situation ahead of the general elections.
Food inflation, which has been a major cause of concern for the government, dropped to 8.12 percent in February, compared to 8.8 percent in January as the rate of price rise slowed in almost all items, except fruits, rice and milk.
Inflation, which is on decline since December, was 5.05 percent in January. Prior to February, the lowest WPI was recorded in May 2013 at 4.58 percent. In June, it had inched up again to 5.16 percent.
As per the data released on Friday, rate of price rise for onions - on annual basis - contracted 20.06 percent in February. Similarly rate of price rise in potato slowed to 8.36 percent.
The overall inflation in the vegetable basket dropped to 3.99 percent, from 16.6 percent in January. There was also a drop in prices of pulses, cereals and wheat. However, fruits, milk and other protein-rich items like egg, fish and meat became costlier in February compared to the previous month.
Inflation in the manufactured items, like sugar and edible items, was 2.76 same as in January.
Commenting on the fall in WPI inflation, Deputy Chairman of Planning Commission Montek Singh Ahluwalia said: "This is clearly a good news. It shows that this area (price situation) which was not an area that we were comfortable, is now getting into more comfortable range."

Meanwhile, December inflation has been revised upwards to 6.4 percent, from 6.16 percent estimated earlier.
The Reserve Bank of India, which has maintained a hawkish interest rate regime to tame inflation, is scheduled to announce the next monetary policy on April 1. Industry has been demanding a cut in interest rates to boost economic growth, which has slowed to a decade-low level.      

Industry body PHDCCI said the decline in WPI inflation is "inspiring and a positive sign", and also an indication of price stability going forward.
"Since the industry growth is in its low gear at this juncture, the Chamber expects a cut in repo rate in the coming times," its president Sharad Jaipuria said.
Global credit rating agency Fitch said that in the longer run, structurally lower inflation would benefit growth by improving the investment environment.
"Inflation remains high compared with peers, although it came down in recent months due to easing food inflation, as pressures on vegetable prices in particular eased significantly," the agency said.
The retail inflation, based on Consumer Price Index and also factored in by RBI, fell to a 25-month low of 8.1 percent in February.
On the possibility of RBI cutting interest rate in the next policy review, Chairman of Prime Minister's Economic Advisory Council (PMEAC) C Rangarajan said, "I think retail inflation at 8 percent is still high rate. But I believe that if inflation moves down further it will give greater room to the monetary authority to cut interest rates."


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