India's WPI Inflation Eased To Lower-Than-Expected 5.0% In Dec; Likely To Cool Further In Jan: ICRA

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ICRA Research Report

The wholesale price inflation recorded a sharper-than-anticipated dip to a 22-month low of 5.0% YoY in December 2022 (oru expectation: up 5.6%; up 14.3% in December 2021) from 5.8% in November 2022 (up 14.9% in November 2021), with a moderation in prices of all sub-groups except fuel and power.

Interestingly, the consumer price index inflation exceeded the WPI inflation in December 2022 for the second consecutive month, and the wedge between the two widened to 75 bps, from just 3 bps in November 2022, with the extent of the decline in the former being constrained by stickiness in the core-CPI inflation.

Notwithstanding the sequential fall in average wholesale prices of several food items in early-January 2023, the YoY food inflation is likely to witness an uptick in the month on account of an unfaourable base.

However, the monthly average of the U.S. dollar/Indian rupee pair has strengthened in January 2023 so far, relative to December 2022, amid a fall in the dollar index, which is likely to augur well for the landed cost of imports in the ongoing month.

Overall, we project the WPI inflation to print between 4.5%-4.9% in January 2023, before easing to sub-2% by March 2023, unless commodity prices post a strong rebound.

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