India's retail inflation rate moderated to 3.17 percent in January from December's 3.41 percent amid weak demand of households and companies, which were hit by the Govt.'s November 8 move of demonetization.
The major cash crunch situation in the country triggered high inflation that hurt people's buying power, while low inflation levels can indicate poor demand and weak economic activity.
The retail inflation had grown 5.69 percent in January, 2016, indicating a more expansionary economy a year ago.
As per the latest price data, the slide in shop-end sales triggered by the unexpected ban on Rs. 500 and Rs. 1,000 currency notes in November, 2016.
The currency recall forced families to spend less, depressing the demand for some goods including perishable products since November, when the sudden currency recall exercise began.
On the other hand, the consumer food price inflation, a metric to gauge changes in monthly kitchen costs, also moderated to 0.53 percent as compared with 1.37 percent in December 2016.
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The price data also held out pointers on demonetization's effect on prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education that together account for 38 percent of India's retail inflation basket.
Also, housing inflation grew to 5.02 percent in January from 4.98 percent in December. Discretionary spending on goods and services in the retail inflation index excluding food and fuel, which constitute 16 percent of the CPI basket, appear to have been worst affected by restricted access to cash.
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