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WPI inflation at 10.7% YoY in Sep’22

Lower than our expectations

* Wholesale Price Index (WPI) based inflation came in at a 17-month low of 10.7% YoY in Sep’22 as against 12.4%/11.8% YoY in Aug’22/Sep’21. The number was lower than a Bloomberg survey of 11.3% YoY and our forecast of 12% YoY.

* Internals suggest that ~50% (5.3pp) of headline WPI inflation in Sep’22 was caused due to imported inflation – the lowest contribution in 18 months. Lower headline WPI was largely due to imported inflation touching an 18-month low (41% weightage in the WPI basket) of 13.8% YoY in Sep’22. Moreover, domestically generated WPI inflation also came in at a 10-month low of 8.7% YoY in Sep’22 as compared to 10.2% YoY in Aug’22.

* WPI food inflation stood at a 10-month low of 8.1% YoY in Sep’22 as against 9.9% YoY in Aug’22, led by lower inflation in primary food articles as well as manufactured food items.

* WPI inflation in ‘primary articles’ came in marginally lower at 11.7% YoY in Sep’22 (v/s 14.9% YoY in Aug’22). The same for ‘fuel and power’ stood at a six-month low of 32.6% YoY in Sep’22 (v/s 33.7% YoY in Aug’22). WPI inflation in ‘manufactured products’ came in at a 19-month low of 6.3% YoY in Sep’22 (v/s 7.5% YoY in Aug’22).

* Core WPI (non-food manufactured products) inflation came in at a 19-month low of 7% YoY in Sep’22 v/s 7.9% YoY in Aug’22.

* Overall, imported inflation is still causing half of WPI inflation. While WPI inflation inched lower, CPI inflation stood higher in Sep’22, indicating continuity of the strong pricing power for retailers. We expect CPI (monetary policy anchor) to ease towards 6%/5.5% by 4QFY23/Mar’23. Accordingly, we expect the RBI to hike the repo rate by another 35bp or 50bp in Dec’22, taking the repo rate to 6.25%/6.40% by the end of Dec’22.

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