India’s headline inflation likely to have accelerated slightly in December

India’s headline consumer price inflation is expected to have accelerated slightly in December. According to a Societe Generale research report, the consumer price inflation is likely to have risen to 3.8 percent year-on-year, as compared with November’s 3.6 percent.

The possible acceleration in inflation mainly signifies a low base effect, as there was a sharp decline in monthly inflation in December 2015 compared with November 2015. Thus there is no indication of rebounding demand conditions India in spite of demonetisation.

Demand destruction is likely to continue and the December 2016 headline CPI index is expected to be lower than in November 2016. Food prices along with prices of certain manufactured products would continue to stay weak, stated Societe Generale.

Anecdotal evidence implies prices of certain durable consumer goods have begun trending down, particularly for those products whose demand is greatly dependent on cash availability. India’s December manufacturing PMI recorded its first contraction in 2016 due to demand destruction owing to demonetisation, noted Societe Generale. In the meantime, the services PMI shrank for a second straight month in December to register its lowest reading since January 2014.