What moved consumer inflation in March 2023, where is it headed?

Consumer inflation fell to a 15-month low in Mar 2023. CPI combined was below market expectations, supported by base effect and soft food prices. Reported inflation was 5.66% y-o-y compared to expectations of 5.8%. Comparing y-o-y inflation rates for Feb and Mar 2023, 59% of 290 sub-components of CPI combined saw moderation in price growth, 38% saw a jump in price growth whereas 3% witnessed no change.

Let us examine components and sub-components of CPI combined to determine what contributed to or hindered the moderation.

Food and beverage
With a weightage of 45.9%, food and beverage inflation eased to 5.11% y-o-y in March 2023 from 6.3% in February 2023.

Fruits and Vegetables
While fruits saw an increase in inflation, vegetable prices declined. The category was affected due to unseasonal rains and hailstorms.

Other foods
Demand-supply gap is fuelling milk inflation; Cereals inflation continues to remain in double digits, though it eased off in March after government intervention.

Healthcare
With a weight of 5.89% in CPI Combined, health infl ation jumped from 6.5% in February 2023 to 6.59% in March 2023.

Healthcare inflation continues to rise led by a jump in the prices of medicines and medical tests.

Fuel and power
The component has a weightage of 6.8% and its inflation moderated from 9.9% in February 2023 to 8.9% in March 2023.

Despite higher LPG prices, fuel & light inflation moderated. Impact of increase in LPG price will reflect in the future.

Transportation and communication
Inflation fell to 3.99% in March from 4.52% in February 2023. It has a weightage of 8.59%.

Household goods
Fall in prices of detergent and steel utensils led to softer category infl ation. It fell to 7% in March from 7.35% in Feb. Weightage is 3.8%.

Washing powder prices softened due to price cut amid falling raw material costs. Steel utensils were cheaper due to falling steel prices amid low overseas demand.

Education
It has a weightage of 4.46% and the category inflation declined marginally to 5.4% in March from 5.6% in February 2023.

The stickiness in education inflation continued as books and stationery prices remained firm.

Personal care
With a weight of 3.89%, the category inflation softened to 8.2% in March from 9.4% in February 2023.

Moderation in gold prices and personal care items softened personal care inflation in March 2023.

Where is inflation headed?
Going forward, inflation is expected to moderate further due to the lag effects of an increase in interest rates and the continuation of favourable base effects. However, there are upside risks due to adverse weather conditions like El Nino and heatwaves. Also, imported inflation due to the tight oil market poses another risk. Reports from Emkay, Kotak Securities and Elara Capital predict consumer inflation in the range of 5.2-5.5% in 2023-24.