Mon Dec 14 00:30:00 CST 2015

Consensus Actual Previous
Y/Y % change -2.8% -1.99% -3.80%

WPI deflation eased in November. At 1.99 percent the annual rate of decline in wholesale prices was nearly 2 percentage points below its October mark and comfortably short of market expectations.

The change in the headline yearly rate was in no small way a reflection of a much shallower fall in fuel prices (11.1 percent after 16.3 percent) but deflation in manufacturing also slowed from 1.67 percent to 1.42 percent.

Pipeline inflation pressures remain muted but the surprisingly sharp acceleration in the WPI increases the likelihood of a bounce in November CPI inflation, due later this morning. Combined, today's prices update should further reduce the prospects of an early 2016 cut in RBI interest rates.

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.