Abhimanyu Sofat's Profile

Data Source: Office of the Economic Advisor The negative causal relationship between rate hikes and fall in WPI inflation appears to be working perfectly. Consider this causality. Between May 2022 and November 2022, the RBI hiked repo rates by 225 basis points from 4.00% to 6.25. During the same period, WPI inflation fell 1,078 bps from 16.63% to 5.85%. That is because rate hikes hit the manufacturing sector first but take time to trickle down to the retail level. The Monetary Policy Committee (MPC) of the RBI should take solace from the fact that the WPI inflation has reacted sharply to the rate hikes. Clearly, with the CPI inflation being a lag indicator, it should follow suit. In May 2022, WPI inflation had touched a 31-year high of 16.63%. WPI inflation had actually become a lot steeper in 2022 due to the Ukraine war, impact of Russia sanctions, China’s zero-COVID lockdowns and global central bank hawkishness; apart from high inflation and pressure on cost of funds