- India’s CPI and WPI inflation moderated in Apr-23 to 4.70%YoY (18-month low) and -0.92%YoY (34-month low) respectively.
- Headline CPI inflation in Apr-23 remained within the RBI’s target range (2-6%) for the second consecutive month.
- Headline CPI and WPI inflation eased by 96 bps and 226 bps respectively over the previous month.
- Notwithstanding the co-movement at the headline level, both inflation metrics diverged on sequential basis. While CPI index rose by 0.51% MoM, WPI index remained unchanged (0.00% MoM).
- Core retail and wholesale inflation moderated to an 11-month low of 5.48%YoY and 41-month low of -1.77%YoY in Apr-23 respectively, on account of continuing softness in most commodity prices amidst a slowing global economy.
- Moderation in headline inflation for both WPI and CPI can be attributed to easing food inflation, lower input costs, favourable statistical base effects and lagged impact of past monetary tightening.
- Upside risks to inflation remain from El Nino conditions likely evolving during the later summer months
- Apr-23 inflation print would be comforting for the MPC, which is likely to maintain a pause on rates.
- We maintain our FY24 CPI inflation projection at 5.3%.
India’s CPI and WPI inflation
moderated in Apr-23 to an 18-month low and a 34-month low of 4.70%YoY and -0.92%YoY
CPI and WPI inflation eased by 96 bps and 226 bps respectively over the
the co-movement at headline level, both inflation metrics diverged sequentially
in Apr-23 with CPI rising to 0.51% MoM and WPI remaining unchanged (0.00% MoM)
for the second consecutive month.
CPI inflation in Apr-23 remained within the RBI’s target range (2-6%) for the
second consecutive month.
WPI inflation in Apr-23 retreated to negative territory after a gap of 33-months
i.e almost three years.
retail and wholesale inflation moderated to an 11-month low of 5.48%YoY and
41-month low of -1.77% YoY in Apr-23 respectively.
Key highlights of CPI
Headline CPI of 4.70% YoY in Apr-23 was below market expectations (Refinitiv:
- The 0.51%
MoM momentum in Apr-23 was stronger than Mar-23 momentum of 0.23%, but well below
the pre-Covid average sequential increase of 0.69% usually seen in the month of
and Beverages index rose by 0.56% MoM in Apr-23 from 0.23% MoM in Mar-23 and
1.43% in last April. The acceleration in food prices was due to unfavorable but
expected summer seasonality coupled with adverse impacts arising from a
heatwave followed by unseasonal rains/ hailstorms in certain parts of the
country. The top 3 sub-categories contributing to the sequential upturn were
Fruits (3.95% MoM), Vegetables (1.70% MoM), and Spices (1.53% MoM). On the
other hand, the bottom 3 sub-categories contributing to easing price pressures
were Eggs (-3.20% MoM), Edible Oils (-2.40% MoM), and Cereals (-0.34% MoM).
sequential basis, comfort can be found in easing price pressures in cereals for
the second consecutive month, due to open market sales conducted by the Food
Corporation of India and healthy output in the Rabi harvest season.
- On annualised basis, fuel and light inflation
dropped to a 25-month low of 5.52%YoY in Apr-23 due to normalisation in energy
prices, from 8.79%YoY in Mar-23.
momentum in core inflation (CPI ex indices of Food & Beverages, Fuel &
Light, and petrol and diesel items within Miscellaneous) rose to 0.45% MoM in
Apr-23 from a 21-month low of 0.23% MoM in Mar-23. However, amidst a favourable
base, inflation rate under this category moderated to an 11-month low of 5.48%
in Apr-23 from 5.89% in Mar-23
core, Clothing and Footwear inflation moderated to a 19-month low of 7.47%YoY
in Apr-23 from 8.18%YoY in Mar-23; while Personal, Care and Effects inflation
rose to 9.0%YoY from 8.25% in Mar-23 owing to the safe-haven run-up in gold
prices globally during the previous month.
Key highlights of WPI inflation
- WPI inflation moderated to a 34-month low of -0.92%YoY
in Apr-23, retreating to negative territory after a gap of 33-months, from 1.34%
- Sequentially, WPI remained unchanged (0.00%
MoM) in Apr-23 for the second consecutive month.
- At a granular level, gain in the Primary article
index (1.31% MoM) was offset by moderation in Fuel and Power (-2.68% MoM) and
Manufacturing indices remaining unchanged (0.00% MoM).
- Price pressures in the primary index were led
by a sequential increase across all sub-categories barring Non-food. Prominent
sub-categories contributing to the sequential upturn were Crude & natural
gas (+3.47% MoM), Minerals (+2.30% MoM), and Food (+1.45% MoM).
- Core WPI (WPI ex indices of Primary: Food, Mfg:
Food, Mfg: Beverages, Fuel & Power, and Primary: Crude Petroleum &
Natural Gas) rose by 0.06%MoM from a contraction of 0.21% in Mar-23. Despite
the sequential pick-up, Core WPI inflation eased further to -1.77%YoY from
-0.34% in Mar-23 amidst a favourable base at play.
The continued deceleration in headline inflation
in Apr-23 at both the retail and wholesale level has been comforting. For both
the metrics, in addition to a favourable base, easing of food price pressures
amidst the moderation of global food prices and the impact of Government’s
administrative measures were in evidence particularly with respect to cereal
prices. Moreover, core CPI and WPI inflation are exhibiting signs of moderation
on account of further softness in most commodity prices along with a slowdown
in global demand. Accompanied by the unchanged level of fuel prices in the CPI
basket, it is comforting that headline CPI inflation remained within the RBI’s
target range (2-6%) for the second consecutive month.
Having said so, the possibility of El Nino
conditions likely evolving during the later summer months could potentially push
up food prices. While IMD in its First Range forecast had predicted a ‘normal’
rainfall at 96% of LPA for Southwest monsoon, we await the Second Range
forecast to be released later this month for an updated view. Another private
forecaster, Skymet has predicted a ‘below normal’ monsoon at 94%. In addition, firmness
in crude oil prices if any, amidst a stronger than expected recovery in China,
production cuts by OPEC+ and escalation of geopolitical uncertainty could serve
as an added potential upside risks to CPI inflation.
From a monetary policy perspective, we expect
the central bank to maintain a pause and gradually scale back liquidity surplus
to push monetary policy transmission. Potential risks notwithstanding, we see a
faster moderation in headline CPI inflation in FY24 than core inflation. The
latter could prove somewhat sticky amidst the strong growth momentum continuing
in services, especially contact intensive ones. For now, we maintain our FY24
CPI inflation projection of 5.3%.
Says Suman Chowdhury, Chief Economist and
“While a continuing moderation in the monthly CPI inflation print was expected,
the figure of 4.70% for Apr-23 has pleasantly surprised on the downside as
compared to 5.66% in Mar-23. This is the first time that the YoY inflation
print is lower than 5.0% since Nov-21. Clearly, the base factor has a large
role in the significantly lower figure since Apr-22 CPI figure at 7.79% was the
peak in the last calendar year. However, the sequential trend in food and
beverages inflation has also been relatively benign as compared to last April.
The core inflation (ex-food and fuel) is estimated to have dipped well below
6.0%, something that will offer comfort to the policy makers and the central
In our opinion, RBI MPC will continue to keep
the pause button pressed for the remainder of the current calendar year unless
there are any major surprises on the monsoon and the global front. The bond
yields have seen some moderation with 10 yr bond yields slipping below 7%
amidst the favourable inflation figure, the expectation of a pause from Fed in
the near term and also factors such as the higher demand for govt bonds due to increased
SLR requirements of the merged HDFC Bank. However, it will be difficult to
sustain the yields at sub 7% levels given the borrowing plans of the Central
and the State Governments.”
Table 1: Key highlights of CPI inflation
Chart 1: CPI and WPI
inflation have been decelerating after peaking out in Q1 FY23
Chart 2: Core retail inflation finally seems to be
taking a downward trend