Wholesale prices probably eased further in April

BANGALORE (Reuters) - India's headline inflation is expected to have eased for a third straight month in April, as core inflation cooled and fuel costs fell, giving the RBI greater room to ease policy, according to a Reuters poll.

However, high food inflation will remain a concern for the Reserve Bank of India as it bids to spur growth and encourage investment - the government's top priority as it gears up for national elections due in early 2014.

Wholesale prices, India's key inflation measure, probably rose an annual 5.50 percent in April, the slowest pace since November 2009, decelerating from 5.96 percent in March.

"Core inflation will continue to surprise on the downside," said Kruti Shah, economist at Karvy stock broking, who expects wholesale prices rose 4.70 percent in April.

"Even market driven fuel items have declined sharply in the month of April along with metal and commodity prices."

None of the 26 economists in the poll taken this week said inflation quickened last month with forecasts ranging between 4.46 percent and 5.96 percent.

Closely watched core inflation, which strips out volatile food and fuel prices, probably slowed to 3.5 percent in March, its slowest rate in more than three years, according to economists.

In addition, a fall in global crude oil prices prompted Indian oil companies to pass on the savings.

"There will be a significant amount of comfort from fuel prices. In April, we saw price reductions across several components of the fuel price basket, from air turbine fuel to petrol prices and non-subsidised cooking gas," said Shubhada Rao, chief economist at Yes Bank.

However, economists said food prices probably rose during April, as the start of summer pushed up fruit and vegetable prices.

Although inflation has eased in the past few months, the central bank is also concerned by the height of India's current account deficit, and RBI Governor Duvvuri Subbarao has stuck with a cautious stance even though economic growth is at a decade low.

After the RBI cut the repo rate by a quarter point for the third time since January last week, it said there is little room for further policy easing, disappointing investors and putting the onus on the government to revive a moribund economy.

(Reporting by Yati Himatsingka; Editing by Simon Cameron-Moore)