David Buik, of stockbrokers Panmure Gordon, believes inflation will have hit 1.9 per cent last month, and possibly 2.7 per cent by December.
Food inflation in January stood at 0.53 per cent, down from 1.37 in December 2016 and 6.85 per cent in January previous year.
Economists surveyed by Reuters had expected prices to rise by 3.22% from a year earlier, compared with December's 3.41% increase.
"The curious part of this inflation rate is that the non-food components have shown higher price increases such as pan, intoxicants (6.4%), clothing and footwear (4.7%), housing (5.0%), fuel and light (3.4%), and miscellaneous items (5.1%)", Madan Sabnavis, chief economist at Care Ratings said.
"The RBI will continue to hold, the RBI is seeing upside risks to inflation and one data point is not going to change their view dramatically", said Varun Khandelwal, managing director at Bullero Capital. The annual food inflation was 1.07 per cent in rural areas and (-) 0.31 per cent in urban.
China Jan copper imports slip as business slows
But Nomura analysts said it can also be explained by a weakened yuan, which has made Chinese exports more affordable. Imports had been forecast to rise 10.0 percent, accelerating from 3.1 percent growth in December.
According to Consumer Price Index (CPI) data released by the Central Statistics Office (CSO), the fall in retail inflation was mainly due to a drop in the annual food inflation - to 0.53 per cent in January from 1.37 per cent in December.
The prices of milk and milk-based products surged by 4.23 per cent. "In this context, it is important to note three significant upside risks that impart some uncertainty to the baseline inflation path - the hardening profile of worldwide crude prices; volatility in the exchange rate on account of global financial market developments, which could impart upside pressure to domestic inflation; and the fuller effects of the house rent allowances under the 7th Central Pay Commission (CPC), which have not been factored in the baseline inflation path", RBI had said.
Last week, the RBI shocked investors by holding at 6.25 percent and shifting its monetary policy stance to "neutral" from "accommodative".
The shift came as Asia's third-largest economy was still limping back to health after Prime Minister Narendra Modi's November 8 decision to outlaw 500- and 1,000- rupee old banknotes wiped out 86% of the currency in circulation overnight.
Note: Figures of January 2017 are provisional.