India's February WPI rose to 6.8% yoy, led by fuel inflation. However, core inflation declined further to a low of 3.8% yoy and headline WPI continued to decline on a quarter-on-quarter basis. We continue to expect the RBI to cut the repo rate by 25 bps in its monetary policy meeting on March 19, based on lower core WPI and sequential headline WPI inflation readings over recent months, underlying weakness in growth, and the government's recent moves toward fiscal consolidation.
The upside surprise came from the fuel component of WPI, which increased 2.6% month-on-month. This was a cumulative effect of (1) past diesel price hikes, especially those for bulk diesel (2) a 21% rise in LPG prices and (3) pass through of past increases in international crude oil prices.
