Food and core inflation moderate, while fuel inflation plays spoilsport
As India's wholesale inflation eased to a five-month low of 13.93% YoY in Jul-22 from 15.18% in Jun-22, the sequential print also contracted marginally by 0.1% MoM.
Consolidated fuel inflation (comprising of crude petroleum and fuel & power) rose by 46.8% YoY in Jul-22 from 45.6% in Jun-22. Sequentially, consolidated fuel inflation rose by 4.6% MoM in Jul-22 from 1.6% in Jun-22 primarily because of a spike in mineral oils and electricity within the fuel & power segment.
Consolidated food inflation (comprising manufactured and primary food prices) eased to 9.41% in Jul-22 from 12.41% YoY in Jun-22 with continuing price pressures in perishable especially fruits & vegetables and eggs, meat & fish. Sequentially, consolidated food inflation recorded a contraction of 2.2% similar to an increase of 1.3% MoM in the previous month.
WPI core inflation (non-food manufacturing inflation) is estimated to have eased marginally to 8.4% YoY in Jul-22 from 9.3% in Jun-22, with sequential print declining for the second consecutive month of -0.2% vs. -0.8 % in the previous month.
Acuité believes that core inflation will remain sticky as the accrued pressure from higher input costs is expected to get increasingly transmitted to retail inflation with demand normalization. Another major reason for discomfort is the significant rupee depreciation which has led the imported inflation to surge given India's heavy reliance on crude oil imports. As per RBI's own study, a 5% depreciation in the rupee leads the inflation to rise by nearly 10-15 bps. INR's ~6% depreciation in 2022 so far and the higher weightage of crude oil and its derivatives in the WPI basket as compared to CPI could continue to weigh on WPI inflation. Nevertheless, a continued correction in commodity prices could outweigh the impact of rupee depreciation, from an inflation perspective.
Link to the report