India’s Nov CPI inflation eases as one-off factors drag production

Gradual disinflation is underway.

Last year, India’s food inflation had peaked at 14.5% due to a sharp jump in vegetable prices, pushing up headline CPI to 11.2%. These base effects led this year’s food inflation to ease to 3.6% vs 5.8% in Oct, with the fuel price inflation slowing to 3.3%.

According to a report by DBS, as these distortions fade, CPI inflation is expected to head back towards 6.0% over the next 2-3 months before settling within the 5.5-6.5% in FY16. The inflation trajectory is turning favourable on the back of a tight monetary policy, smaller rise in minimum prices, moderating rural wage growth, steps initiated by the government to ensure ample food supplies and falling commodity prices.

Anticipated rebound in growth next year and resultant boost to aggregate demand will be watched closely for inflationary pressures. On policy, the soft Nov CPI inflation has already been priced in and is unlikely to evoke any response from the Reserve Bank of India (RBI).