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As expected, the Wholesale Price Index inflation witnessed a broad-based moderation to 3.9% in YoY terms in February 2023 (our expectation: up 4.0%) from 4.7% in January 2023. Subsequently, there has been a sequential softening in global commodity prices in the ongoing month, which along a high base for the core index (March 2022: up 11.3%) related to the escalation of the Russia-Ukraine conflict, and the resultant surge in commodity prices, are likely to further soften the core-WPI inflation in March 2023.
Moreover, the U.S. dollar/Indian rupee pair has mildly appreciated in sequential terms in March 2023 so far on the back of foreign portfolio investment-equity inflows, as well as weaker DXY, which would ease the landed cost of imported goods, relative to the prior month.
Amid a mixed trend in the wholesale prices of essential commodities in the early part of the month, the WPI inflation is anticipated to soften to ~2% in March 2023.
Thereafter, it could slip into deflation during some months of Q1 FY24 on the high base related to the surge in global commodity prices in the year-ago period, even as the outlook for food inflation over the next few quarters is clouded by emerging risks such as a potential heatwave and the development of El Nino conditions.
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