India: Expect a 0.1ppt deceleration in CPI to 3.53% Y/Y - TDS

Research Team at TDS notes that India’s December CPI data is due today and the consensus expects a 0.1ppt deceleration in the headline to 3.53% Y/Y from the prior November figure.

Key Quotes

“This would be the slowest pace since November 2014. The drop in inflation, however, is not entirely driven by underlying subdued inflationary pressure, but rather by the shock induced by the government demonetization reform. The sever shortage of cash in the weeks following the announcement have caused retail demand to fall. This effect stacks up with the positive impact on food staple prices from a good but delayed monsoon, and should more than offset rising oil prices in December.”

“All in all, we think there are downside risks to today’s inflation print, which would help secure a safe trajectory towards the 5% target by end-March 2017. This in turn should help the RBI to cut rates again by 25bps in February, and another two times in 2017.”