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The wholesale price-based inflation eased to a 29-month low of 1.34 per cent in March on easing prices of manufactured products and fuel items, even though food articles turned expensive.
March is the 10th straight month when wholesale price index (WPI) based inflation has declined.
The inflation was 3.85 per cent in February and 14.63 per cent in March 2022.
"Decline in the rate of inflation in March 2023 is primarily contributed by fall in prices of basic metals, food products, textiles, non-food articles, minerals, rubber & plastic products, crude petroleum & natural gas and paper and paper products," the commerce and industry ministry said on Monday.
The headline WPI inflation for March eased to its lowest level since October 2020, when the rate of price rise was 1.31 per cent.
Last month, inflation in food articles rose to 5.48 per cent as against 3.81 per cent in February.
Among food items, although inflation in vegetables, onion and potato remained in negative, the rate of price rise was higher than that in February.
In case of vegetables, it was at (-)2.22 per cent in March, higher than (-)21.53 per cent in February. In onion, inflation was (-)36.83 per cent in March, higher than (-)40.14 per cent in the previous month.
Inflation in wheat and pulses was 9.16 per cent and 3.03 per cent, respectively, while in oilseeds it was (-)15.05 per cent in March 2023.
Equirus Securities in a note said within food items category, cereals especially wheat is softening while other items like vegetables, fruits, milk and pulses are rising which is creating a discomfort for a broad-based food disinflation within the CPI index.
"Another discomfort is from rising food prices. Other than cereals particularly wheat, cereals such as bajra, maize and barley are yet to cool down. In addition, pulses, milk, vegetables, fruits, spices are rising month-on-month which suggests that retail food disinflation besides cereals and oilseeds could be a challenge," Equirus said.
As per the government data, fuel and power basket inflation eased to 8.96 per cent in March from 14.82 per cent in February. In manufactured products, inflation was (-)0.77 per cent as against 1.94 per cent.
The deceleration in WPI comes in line with the easing of March retail inflation.
Consumer price index based retail inflation declined to a 15-month low of 5.66 per cent in March from 6.44 per cent in February.
In its monetary policy review earlier this month, RBI cautioned that adverse climatic conditions are a risk to the future inflation trajectory and predicted milk prices to remain firm going into the summer due to tight demand-supply situation and fodder cost pressure.
The central bank also paused the interest rate hike, holding the benchmark rate at 6.50 per cent. It projected retail inflation to average 5.2 per cent in the current fiscal year.
TIW Capital Chief Executive Officer Mohit Ralhan said RBI still may need to look for stabilization of WPI inflation at these levels and more importantly a reduction in the CPI index before taking the decision to pivot its policy stance.
"The US Fed is also appearing to be towards the end of its interest rate increase cycle and therefore the probability of a policy pivot in 2023 has gone up. With economic growth still looking on track, the reduction in inflation increases the headroom for policy maneuvering," Ralhan said.
Barclays India in a report said it expects WPI inflation to fall further as global commodity prices come off their 2022 highs, domestic food inflation moderates, and favourable base effects play out more strongly.
"We think the moderation in retail inflation suggests a pause in the next MPC meeting is likely. Easing price pressure from the wholesale prices indicates input price inflation is easing, which supports the view of core retail inflation too trending down going ahead," it said.
Barclays expects the monetary policy committee (MPC) to remain on hold for the rest of the fiscal year and does not anticipate rate cuts in the near term.