The country's annual food inflation declined to 12.63% for the week ended June 26 as against previous week's 12.92% with the fall in prices of food items.

However, fuel rates grew by 18.02% in the period under review.

Facts released by the commerce ministry indicated a more than 40% decline in potato rates and a over 8% drop in onion prices and single-digit rises in cereal, wheat and rice prices aided to decline the food inflation.

The index for primary articles remained at 16.08%, with the sub-index for non-food items at 18.6%.

With the monsoon picking up the speed and spreading India, comprising the foodgrain bowls, a further drop in the inflationary figures is projected.

Planning Commission deputy chairman Montek Singh Ahluwalia stated that inflation would ease into a comfortable zone by December 2010.

But, market analysts stated that the second successive weekly drop in food inflation would give little cheer to policymakers, as the recent fuel price hike could push up the inflation level.

The central bank is likely to increase key interest rates by another 25 basis points when it takes up its quarterly monetary policy review July 27, after raising it by a similar quantum July 2. (With Inputs from Agencies)