Mon Nov 16 00:30:00 CST 2015

Consensus Actual Previous
Y/Y % change -3.88% -3.80% -4.54%

Wholesale price inflation was much as expected in October. A minus 3.80 percent annual rate was up from minus 4.54 percent in September and nearly minus 5 percent in August.

The slowdown in the rate of decline was largely due to a bounce in food prices and at 2.44 percent, the yearly inflation rate here was almost a full 2 percentage points above its reading last time. Fuel (minus 16.32 percent after minus 17.71 percent) also provided some upside pressure as did overall manufacturing (minus 1.67 percent after minus 1.73 percent).

Today's diminution of pipeline deflation pressures should still leave a favourable outlook for CPI inflation. However, the 1st December RBI meeting is probably too soon for another cut in official interest rates, especially amidst speculation about a possible Fed tightening just a couple of weeks later.

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.