InvestorQ : How do you see the impact of the lower inflation on RBI policy?
Arusha Ray made post

How do you see the impact of the lower inflation on RBI policy?

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2 months ago
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The wholesale price index or the WPI inflation for July 2022 came in sharply lower at 13.93%. That is a full 270 bps below the revised May 2022 peak level of 16.63%. There was visible tapering of inflation across the food products, primary articles and manufactured products on a yoy basis. However, fuel inflation was the one item in the basket that reflected a spike, gaining nearly 300 bps compared to the previous month. This was largely on account of the low base effect, but fuel was also sharply up by 6.56% on a MOM basis.

The good news is that primary inflation is decisively lower in both food products and mining products. Even the manufacturing inflation tapered close to 8%. Now manufacturing inflation has a 64% weight in the WPI basket, so once oil normalizes, we could see the WPI inflation gravitating towards the manufacturing inflation number. WPI inflation has fallen sharply in response to the RBI hawkishness. This allows the RBI to go slow on further hikes in the upcoming MPC meet in October 2022, having already hiked rates by 140 bps hike.

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