(Adds details, quotes, background)
By Estelle Shirbon
PARIS, May 13 (Reuters) - French inflation hit a record low in April, which economists said would support household demand, but business leaders struck a darker note with a forecast for plummeting investment in industry.
Consumer prices rose by 0.1 percent both month-on-month and year-on-year, according to EU-harmonised data released by statistics office INSEE on Wednesday. INSEE said this was the smallest year-on-year increase since the series began in 1996.
The figures were slightly below consensus forecasts for monthly and annual rises of 0.2 percent.
INSEE noted that the year-on-year increase of 0.1 percent recorded in its non-harmonised survey, which goes back further in time than the harmonised one, was at its lowest since 1957.
"Inflation is really the only reason which can explain why purchasing power is not plummeting, taking household expenditure with it," said Alexander Law of Xerfi in Paris.
"So really it's the one piece of good news, and it does not indicate that we are heading towards deflation in France because when you look at core inflation, that is still in its comfort zone of 1.6 percent."
Law said the only reason why prices were heading towards negative territory was because a plunge in crude oil prices had trickled through to French consumers, and he would only worry about inflation if wages were to start falling.
FUEL PRICES PLUMMET
Non-harmonised data showed energy prices dropped by 13.8 percent in April compared with the previous year.
Nicolas Bouzou of Asteres noted that the price of petroleum products fell by 22.4 percent, while fresh products were down 0.7 percent and health products were down 2.2 percent.
"That means that about 15 percent of the total consumption of households is affected by price decreases. With the exception of rent, there is practically no pocket of inflation left in France," he said.
Bouzou said low inflation could reinforce a trend towards economic stabilisation suggested by a range of evidence around the world.
But in a separate, quarterly survey published on Wednesday, INSEE found business leaders' expectations of investment in industry had worsened over the past three months.
They were now expecting investment to plunge by 18 percent in 2009, compared with a forecast of -12 percent when they were last asked, in January.
French industry has been hard-hit by the economic slowdown.
The latest data, released on Monday, showed industrial output had fallen by 1.4 percent month-on-month in March. Output in the first three months of the year was down 15.5 percent compared with the same period in 2008.
In separate data released on Wednesday, the Bank of France said France's current account deficit widened to 2.2 billion euros in March from 2.0 billion euros in February. (Additional reporting by Vicky Buffery and Francois Murphy, editing by Mike Peacock)