India's disinflationary trend well entrenched

India's two latest headline CPI data points, which indicate an extremely benign rate, are more an indication of a base effect than the actual inflationary trend. In fact, the post monetary policy release confirms the expectation of a pick-up in inflation from September onward as the base effect wanes. 

"Having said that, the general disinflationary trend is deeply entrenched. Despite the expected pick-up in inflation, the RBI's immediate target of 6% headline inflation by January 2016 is unlikely to be breached", says Societe Generale. 

The RBI has now revised down its January 2016 CPI expectation of 5.8% yoy and January 2017 CPI inflation of 4.8% yoy.

"This is in line with our expectation of 5.8% yoy headline inflation in Q1 2016 and 4.9% headline inflation in Q1 2017", added Societe Generale.