India’s headline inflation seems to have decelerated further in January

India’s headline inflation is expected to have decelerated further in January. According to a Societe Generale research report, the headline inflation gauged by consumer price index is likely to have eased further to 3.3 percent year-on-year as compared with the 3.4 percent print recorded in December. Negligible sequential inflation is expected in January 2017.

The slowdown in inflation in January in spite of a low base effect might essentially be a reflection of the effect of continued demand destruction after demonetisation. As the seasonal impact fades prices of food might indicate a minor uptick. However, the potential acceleration in food inflation might continue to be pretty muted as compared to historical experience.

Moreover, lack of pricing power for the producers, particularly after the falling capacity utilisation, might possibly lead to manufactured product inflation staying weak. Furthermore, with India’s services PMI staying in contraction territory for the third straight month in January 2017, service sector inflation is likely to ease ultimately, said Societe Generale.