|Y/Y % change||1.19%||1.62%||0.79%|
Wholesale price inflation accelerated for a third consecutive month in June. At 1.62 percent, the annual rate was up more than 0.8 percentage points versus its May outturn and comfortably above market forecasts.
Much of the rise was attributable to sharply weaker deflation in the energy sector and the yearly decline in prices here fell from 6.14 percent to 3.62 percent. However, food (8.18 percent after 7.88 percent) also provided a lift as did overall manufacturing (1.17 percent after 0.91 percent).
The WPI may not be quite as important to determining the monetary policy stance as it once was but the RBI will still be wary of what is becoming a trend pick-up in pipeline inflation pressures. As such today's data should reduce the likelihood of any cut in official interest rates at the central bank's next meeting in August.
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.
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