Thu May 14 01:30:00 CDT 2015

Consensus Actual Previous
Y/Y % change -2.3% -2.65% -2.33%

WPI inflation unexpectedly fell again in April. At 2.65 percent, the yearly decline in wholesale prices was more than 0.3 percentage points steeper than in March and means that the annual rate has been below zero every month so far in 2015.

Moreover, all of the three main subsectors registered declines. Hence, manufacturing prices were down 0.52 percent on the year after a 0.19 percent fall in March, fuel was off 13.03 percent after a 12.56 percent drop and food prices advanced 5.73 percent after a 6.31 percent gain.

The broad-based weakness of the headline index suggests a further easing in pipeline inflation pressures and bodes well for a subdued near-term outlook for the CPI. As such today's data should increase the likelihood of another round of official interest rate cuts with next month's RBI meeting a clear contender for the announcement.

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.