Strong disinflation opens room for further RBI easing

Disinflation in India has been strong and broad-based since H2 2014, reflecting markedly better food price management, sustained idle industrial capacity, lower commodity prices and a largely stable INR. 

India's retail inflation (CPI) is expected to average 5% during FY 15-16, considerably lower than the central bank's early 2016 target of 6% and the long-term (15- year) average of 7.3%, foresees Barclays. 

Disinflation has been even stronger at the wholesale price (WPI) level, which has contracted on y/y basis in every month since November 2014 and is currently near a four-decade low (August 2015: -5.0% y/y). The renewed weakness in commodity prices in Q3 15 should help keep inflation 'lower for longer'. Despite stronger GDP prints under the 'new' series, a little sign of demand-driven inflation is seen, added Barclays.