Inflation - Core inflation declines :: Edelweiss PDF link

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Headline inflation in Feb increased to ~7.0% YoY from ~6.6% in Jan, due to rebound in primary articles inflation (partly reflecting base effect). Highlight of the data was, however, the fall in manufacturing/core inflation that was not just on high base effect but also on receding price pressures. Adjusting for seasonality and base effect (MoM SA, 3MMA), the data illustrates moderation in manufacturing inflation at accelerated pace in the recent months. Indeed, our re-arranged WPI basket shows that the demand driven inflation has eased substantially, reaching its historical average. Meanwhile, the imported inflation has also declined somewhat, but remains elevated steered by commodity prices.  

In coming months, we see the headline inflation hovering at current levels. The primary articles inflation is likely to inch up further as the non-food articles inflation continues to normalize against unusually low levels currently. This rise will, however, be negated by further dip in core inflation amidst falling demand pressures and high base effect.

Inflation - Core inflation declines