India’s wholesale inflation eased to a 25-month low of 3.9% in February, led by moderation in manufactured goods inflation. The low print for manufactured goods inflation (1.9%) was mainly because of deflation in textile and metals categories on an annual basis. A lower manufactured food and chemicals inflation also helped. However, a higher print for food inflation limited the downside in overall wholesale inflation.

However, there has been a second consecutive month of gain in sequential momentum for wholesale prices due gain in metals and food prices (mom). A sharp uptick in sequential momentum was also visible for coal and mineral oils. While we expect WPI inflation to ease further in coming months due to the high base, any strong rebound in global commodity prices will remain a key monitorable. Favourable base could help WPI inflation turn negative in May and June 2023. For the next fiscal, we expect the wholesale inflation to ease below 3%. A lower WPI print would also support downtrend in retail inflation.