Inflation declined to about 16-month low at 3.79 per cent for the week ended August 25, compared to 3.94 per cent in the previous week mainly due to fall in prices of essential items like food and vegetables, maize, wheat, fresh marine and some manufactured goods.

The wholesale price-based index stood at 5.27 per cent in the corresponding week a year ago.

During the week, prices of fruits and vegetables fell by 1 per cent, followed by softening prices of fresh marine, wheat, maize, meat and other commodities while condiments and spices, moong as well eggs got expensive.

Among manufactured items prices of zinc ingot and carbon black declined.

This has fueled expectations of a softening monetary stance by the Reserve Bank as wholesale prices-based inflation has remained below its estimates for quite some time now.

RBI has projected inflation close to 5 per cent for the current fiscal and 4-4.5 per cent for the medium term.

"Some relaxation of tight monetary stance by RBI makes some sense as inflation is hovering below four per cent. It is only a question of timing now," Shashank Bhede of economic think tank NCAER said.

Finance Minister P Chidambaram had earlier said the government aims to keep inflation rate close to four per cent.

He had also said there would be pressure on food prices until production of wheat, rice and pulses was stepped up.

According to analysts, prediction of normal monsoon has given rise to expectations of a fall in food prices in the coming months. During the first quarter of this fiscal, farm sector witnessed a growth of 3.8 per cent. This indicated increase in supply of food items, which had been primarily responsible for the rise in inflation.