·         Headline inflation for the month of Feb’23 clocked in at 31.5%YoY, taking the 8MFY23 average inflation to 26.2%. On a MoM basis, the inflation was recorded at 4.3%MoM—the highest monthly reading since Jul’22.

·         The Food Index, which has a 34.6% weight in National CPI, spearheaded the inflation reading for the month, increasing by 44.6%YoY/4.1%MoM. Within the index, the major culprits behind the increase were: Fresh Fruits, Chicken, Cooking Oil, and Vegetable Ghee, with some respite coming from prices of Tomatoes and Onions.

·         Transport Index showed an increase of 50.5%YoY/12.0%MoM and holds a weight of 5.9% in the overall CPI Index. This was driven by the increase in the prices of fuels, which were up by 16.5% in the Urban Index and 18.0% in the Rural Index—driven by the 16.2%/15.3% increase in MS/HSD prices applicable in the first half of the month.

·         Measures introduced in the mini-budget last month, along with the heightened gas and electricity tariffs are expected to keep inflation readings on the higher side for the rest of the fiscal year. Consequently, we revise our FY23 average CPI forecast to ~27.9%YoY.

·         Core inflation continues to be on the rise, clocking in at 17.1%YoY/21.5%YoY in the Urban/Rural indices, respectively. With this backdrop, we believe that the MPC would continue its hawkish stance and increase policy rates by at least 200bps, with a 300bps increase also likely.

Courtesy – AKD Research