Wed Apr 15 01:30:00 CDT 2015

Consensus Actual Previous
Y/Y % change -1.95% -2.33% -2.06%

WPI inflation proved surprisingly soft in March. At minus 2.33 percent the annual rate was below zero for a fourth consecutive month and at its weakest level since the end of last year.

Inflation in the food sector slowed to 6.31 percent and remained strongly negative in fuel (minus 12.56 percent). Significantly, prices also fell on the year in manufacturing (minus 0.19 percent after up 0.33 percent in February).

Today's unexpectedly weak figures follow news of a well behaved March CPI (5.17 percent) and should be seen as boosting the likelihood of another RBI interest rate cut before very long.

The wholesale price index tracks the average changes in price of a fixed representative basket of wholesale goods. The basket includes goods from the most important sectors in India's economy, such as: food products, fuel and power, textiles, rubber, metal products, machinery and chemicals. It is calculated using a weighted arithmetic average of wholesale prices. The WPI is one of the Reserve Bank of India's inflation measures.

The Wholesale Price Index is closely followed as an indicator of inflation by the Reserve Bank of India, as well as many Indian corporations and banks.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the WPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the WPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.