CPI and WPI inflation moderated in Mar-23 to 5.66% YoY (15-month low) and 1.34%
YoY (29-month low) respectively.
- After a hiatus of 2-months, headline CPI inflation reverted to RBI’s
target range (2-6%).
- Lower commodity costs, favourable statistical base effects and
government interventions to ease price pressures in food articles helped both
WPI and CPI inflation drift lower in Mar-23.
- Nevertheless, upside risks to inflation remain from El Nino conditions
likely evolving during the later summer months and possibility of a firmness in
crude oil prices due to the OPEC+ supply cuts.
- From monetary policy perspective, we expect the central bank to maintain
a prolonged pause and gradually scale back liquidity surplus to push monetary
policy transmission. However, the impact of global economic uncertainties on
growth-inflation dynamics keeps the door open for incremental rate hikes in the
- We maintain our FY24 CPI inflation projection of 5.3%.
India’s CPI and WPI inflation
moderated in Mar-23 to a 15-month low and a 29-month low of 5.66% YoY and 1.34%
YoY respectively. More importantly:
headline CPI and WPI inflation eased by 78 bps and 251 bps respectively over
the previous month.
the consistent moderation at headline level, both inflation metrics diverged
sequentially in Mar-23 with CPI rising to 0.23%
MoM and WPI remaining unchanged (0.00% MoM).
a hiatus of 2-months, headline CPI inflation reverted to RBI’s target range
Key highlights of CPI inflation
0.23% MoM momentum in Mar-23 is broadly in line with the pre-Covid average
sequential increase of 0.22% MoM usually seen in the month of March typically
due to a seasonal firmness in perishable food items.
and Beverages index also rose by 0.23% MoM in Mar-23 from a contraction of
0.06% MoM in Feb-23. Along with the unfavourable summer seasonality, the
acceleration in food prices was also due to the adverse impact of the heatwave
followed by unseasonal rains/ hailstorms in certain parts of the country. The
top 3 sub-categories contributing to the sequential upturn were mostly
perishables like Fruits (3.67% MoM), Vegetables (1.73% MoM), and Milk (0.62%
MoM). On the other hand, the bottom 3 sub-categories contributing to easing
price pressures were Eggs (-4.42% MoM), Edible Oils (-2.55% MoM), and Cereals
moderation in the increased cereal prices can be attributed to the steps taken
by the Central Government such as the open market sale of wheat from the buffer
stocks to cool down market prices. The ban on wheat exports have persisted
since May 2022, given the continuing risks of a lower wheat harvest in the
concluding rabi season.
and milk products inflation continue to be near double digit at 9.3% YoY in
Mar-23 and on a sequential basis, the inflation has been higher than 0.5% MoM
inflation has cooled down to 0.1% MoM in Mar-23 though the annualized print
continued to be high at 18.2%.
fuel and housing index remained unchanged on sequential basis (0.0% MoM for
both). Despite this, housing inflation, rose to over a 4-year high of 4.96% YoY
in Mar-23 from 4.83% in Feb-23.
momentum in core inflation (CPI ex indices of Food & Beverages, Fuel &
Light, and petrol and diesel items within Miscellaneous) moderated to a
21-month low of 0.28% MoM in Mar-23 from 0.40% in Feb-23. The annualized rate
of inflation under this category posted a moderation to 6.00% in Mar-23 from 6.34%
and Footwear inflation moderated to a 16-month low of 8.18% YoY in Mar-23 from
8.79% in Feb-23.
Key highlights of WPI inflation
- WPI inflation has been on a consistent decline
since last fiscal and moderated to a 29-month low of 1.34%YoY in Mar-23 from 3.85%
in Feb-23, the steepest decline in 4 months.
- Sequentially, WPI remained flat (0.00% MoM) in
Mar-23 vs. an increase of 0.13% MoM seen in Feb-23.
- At a granular level, gain in the Primary article
index (1.16% MoM) was offset by moderation in Fuel and Power (-1.26% MoM) and
Manufacturing indices (-0.28% MoM).
- Price pressures in the primary index were led
by a sequential increase across all sub-categories barring Non-food. The
sub-categories contributing to the sequential upturn were Minerals (14-month
high at +8.16% MoM), Crude & natural gas (+4.61% MoM) and Food (+1.13%
MoM). The non-food sub-category witnessed a contraction of 2.05% MoM in Mar-23,
over and above a contraction of 1.90% in Feb-23.
- The consolidated Food & Beverages index
rose by 0.47% MoM in Mar-23 from a contraction of 0.13% in Jan-23.
- Core WPI (WPI ex indices of Primary: Food, Mfg:
Food, Mfg: Beverages, Fuel & Power, and Primary: Crude Petroleum &
Natural Gas) slipped into a contraction of -0.84% YoY in Mar-23, a 33-month
low, from 1.65% in Feb-23.
Favourable statistical base effects coupled
with lower input costs helped both CPI and WPI inflation drift lower in Mar-23.
Easing of food inflation seems encouraging along with the ongoing decline in
global food prices and IMD predictions of a ‘normal’ monsoon outturn in the
upcoming Jun-Sep season. Moreover, core retail and wholesale inflation are exhibiting
early signs of moderation on account of incremental softness in most commodity
prices along with a slowdown in global demand. Overall, it is comforting that
headline CPI inflation has reverted to the RBI’s target range (2-6%) after a
gap of 2 months.
Having said so, the possibility of El Nino
conditions likely evolving during the later summer months could potentially push
up food prices. In addition, the recent rally in crude oil prices following the
surprise announcement of a cut in product by OPEC+ if were to sustain or see
further upside, could serve as an upside risk to inflation.
From monetary policy perspective, we expect the
central bank to maintain a prolonged pause and gradually scale back liquidity
surplus to push monetary policy transmission. However, impact of global
economic uncertainties on growth-inflation dynamics keeps the door open for
incremental rate hikes in the near future. Potential risks notwithstanding, we
see a steady moderation in headline CPI inflation in FY24 as compared to core
inflation. We maintain our FY24 CPI inflation projection of 5.3%.
Says Suman Chowdhury, Chief Analytical Officer “The headline CPI
inflation has moderated substantially to 5.66% in Mar-23 from 6.44% in Feb-23,
providing some relief to the central bank and the government. While the average
inflation for Q4FY23 still stands at 6.21%, the drop of around 80 bps in the
March print partly validates the “pause’ stance taken by the MPC in the earlier
part of the current month. The cooling in the food prices has been instrumental
in driving down the inflation levels with the food and beverages inflation
sliding down from 6.26% YoY in Feb-23 to 5.11% YoY in Mar-23. Except for a
slight seasonal sequential uptick in fruit and vegetable prices and an upward
pressure on milk prices, those in other categories have either declined or
remained largely stable. The sale of wheat from the buffer stocks in the open
market by the government has helped to moderate the prices of cereals, a key
factor in pushing up the inflation in the last two months.
What will also bring in comfort is a meaningful
drop in core inflation YoY. If there are no surprises on the weather and the
oil front, one can expect the headline inflation to moderate further and settle
in the band of 5.0%-5.5% over the next few months. Such a trend is likely to
support the continuation of the pause although a pivot on rates is still some
Table 1: Key highlights of CPI inflation
Chart 1: CPI and WPI inflation have been decelerating
after peaking out in Q1 FY23