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Inflation - Core contained:: Edelweiss PDF link
WPI inflation in May came in at 7.55% YoY, as expected, with core inflation remaining below 5%. However, March inflation was revised sharply higher to 7.7% vs 6.9% earlier, due to revisions in coal, chemicals etc. As per our re-arranged WPI basket, domestic demand inflation showed a modest rise (reflecting excise duty hike) but remained well-contained. It should moderate in coming months as the economy is operating far below potential. Meanwhile, imported inflation eased as global commodities softened (even in INR terms) and is likely to remain so given weakening global demand. However, agri-inflation showed an uptick, largely due to non-food articles. In this regard, progress of monsoon holds the key. Overall, there were no surprises in the data. We continue to expect 25bps rate repo rate cut by RBI on June 18, with a possibility of CRR cut.
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