Views on WPI inflation: Rate hikes to continue as retail inflation still above RBI's comfort zone

New Delhi [India], October 14 : Experts say with retail inflation above the central bank's comfort zone, rate hikes would continue while wholesale price index (WPI) inflation is expected to ease to a single-digit number from October. The experts also said the drivers of inflation seem to be shifting from global to domestic factors.
"September 2022 retail inflation's 7.4 per cent reversed the recent softening trend. Despite several upside risks and the unfavourable base for food products, retail inflation seems to have passed the peak. A rapid cooling off is unlikely given the base and current momentum," Anand Rathi, a brokerage company, said in a statement.
The research also added that with duty and tax cuts on petroleum products and the ban on some food exports, drivers of inflation seem to be shifting from global to domestic factors. The team also said another 50-60 basis points (bps) rate hike is likely.
Wholesale inflation in September moderated to an 18-month low of 10.7 per cent and was broadly in line with our expectations. The moderation in inflation number has been led by easing commodity prices of basic metals, chemical products, textiles and manufactured food products.
CareEdge Chief Economist Rajani Sinha said, "We expect WPI (wholesale price index) inflation to ease to a single-digit number from October aided by a fall in global commodity prices and a favourable base. The impact of easing inflation at the wholesale level could be reflected at the retail level with some lag as the pass-through to the consumer prices is still incomplete."
Anand Rathi research team also said the recent softening of global commodity prices, easing of some global supply-chain problems and the absence of demand pressures seem to indicate retail inflation is past the peak. However, the research team of Anand Rathi also added it does not expect a sharp softening until March 2023.
Morgan Stanley on Friday said wholesale inflation in India softened substantially in September led by a broad-based moderation in prices -- for both food and non-food items. India's wholesale price index-based inflation eased to 10.7 per cent in September as against 12.41 per cent recorded in the previous month, as per the government data released on Friday. Despite the decline, whole price index (WPI) based inflation has, however, remained in double digits for the 18-month in a row.
A report authored by Morgan Stanley's economists Upasana Chachra and Bani Gambhir said India's wholesale inflation softened to an 18-month low in September. The report said the food inflation was the lowest since December 2021.
The rate of inflation based on the WPI Food Index decreased from 9.93 per cent in August 2022 to 8.08 per cent in September 2022, according to data released by the ministry of commerce & industry.