Mon Apr 16 01:30:00 CDT 2018

Actual Previous
M/M % change 0.17% 0.00%
Y/Y % change 2.47% 2.48%

India's wholesale price index increased by 2.47 percent on the year in March, down only slightly from 2.48 percent on the year in February and suggesting some stabilisation is taking place after bigger declines in each of the three previous months. Consumer price index data published last week also showed a relatively small decline in headline inflation from 4.44 percent to 4.28, closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. The wholesale price index rose 0.17 percent on the month after no change previously.

Steady headline WPI inflation in March reflects offsetting moves in food and fuel prices. Food prices, which account for around 15 percent of the index, fell by 0.29 percent on the year in March after increasing by 0.88 percent on the year in February, with vegetable prices dropping by 2.70 percent after an increase of 15.26 percent previously. In contrast, the year-on-year increase in fuel and power prices (around 13 percent of the index) picked up from 3.81 percent in February to 4.70 percent in March. Inflation for manufactured products (around 64 percent of the total index) fell slightly from 3.04 percent to 3.03 percent.

Earlier this month the Reserve Bank of India left policy rates on hold and revised down their near-term inflation forecasts in response to the recent weakness in food and fuel prices. Headline CPI inflation is now forecast to be between 4.7 percent and 5.1 percent in the first half of the new fiscal year, compared with a previous forecast for above 5.0 percent, and to fall to 4.4 percent in the second half, compared with the previous forecast of 4.5 percent.

Despite the downward revisions to the forecasts, they still imply that the recent declines in headline inflation will reverse in coming months, and officials continue to argue that risks to their forecasts are skewed to the upside. Officials also reiterated their commitment to keeping CPI inflation close to 4.0 percent, suggesting that rate increases might be considered if price pressures do pick up as anticipated.

The Wholesale Price Index (WPI) covers primary articles, manufactured products and fuel and power. The data are not seasonally adjusted and the main focus in on the annual change in the index. This can be seen as an indicator of pipeline price pressures and is a loose leading indicator of consumer price inflation as targeted by the RBI.

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.