Retail inflation marginally declined to 9.64 per cent in July from 9.87 per cent in the preceding month as prices of cereal, pulses, fruits and sugar softened.
The consumer price index-based inflation had been falling for three consecutive months before June.
The food inflation in July softened to 11.24 per cent from 11.84 per cent in the previous month, according to the official data released today.
Prices of cereal and pulses came down to 16.03 per cent (from 17.59) and 5.55 per cent (from 8.82 per cent) respectively in July.
Fruit prices also fell by 6.81 per cent during the month from 7.49 per cent a month ago.
Prices of milk and milk products rose by 8.14 per cent in July from 7.96 per cent a month earlier. Eggs, fish and meat and vegetables prices went up by 13.82 per cent versus 12.69 per cent in June.
Also, retail inflation in vegetable prices went up by 16.40 per cent in July, from 14.55 per cent in the previous month, the data showed.
"Vegetable prices are also going up because of heavy rain," Chairman of Prime Minister's Economic Advisory Council C Rangarajan said.
He said the scope for the RBI to take monetary action is limited to the primary condition of "what is happening to rupee in the foreign exchange market".
RBI keeps a close watch on the inflation data to decide its monetary policy. However, in its first quarter monetary policy in the previous month, RBI had kept its key policy rates unchanged to stablise the rupee and contain the escalating current account deficit.
Besides, the industry for long has been demanding for a cut in the key policy rate by the RBI to thrust investment and spur economic activities.