Demonetisation resulted sharp decline in inflation rates:
The deflationary shock has manifested itself in a deceleration in retail inflation, as demand for a range of goods and services has been damped.
That the headline Consumer Price Index-based gauge hit a two-year low of 3.63 per cent for November is therefore no surprise, especially given the additional factor of a favourable base effect — the reading was 5.41 per cent in November 2015.
What is Base Effect?
The base in Base effect refers to Initial value or Base value. Base effect is used to calculate the inflation in the present year in relation to the prices in the corresponding period of previous year.