November 15, 2016 12:30 CST

Actual Previous
M/M % change 0.1%
Y/Y % change 3.39% 3.57%

India's wholesale price index increased by 3.39 percent year-on-year in October, down from 3.57 percent in September. After rising sharply from mid-2015 to mid-2016, WPI inflation has stabilised in recent months. The index rose 0.1 on the month in October.

The slight fall in WPI inflation in October was driven by primary articles, which mainly consists of foodstuffs and accounts for around 20 percent of the index. This component of wholesale price inflation has moderated significantly in recent months, helped by near normal rainfall levels during the annual monsoon season. After a recent peak of 12.6 percent in July, the year-on-year increase in in this component has fallen in each of the last three months, dropping from 5.75 percent in September to 4.34 percent in October.

Offsetting these moves, wholesale prices for fuel and power (which account for around 15 percent of the index) rose 6.18 percent year-on-year in October, up from an increase of 5.58 percent in September. Petrol and diesel prices have accelerated sharply in the last three months.

Wholesale prices of manufactured products, which account for around 65 percent of the index, also recorded a bigger year-on-year increase in October, up from 2.48 percent to 2.67 percent. Manufactured food products recorded slightly weaker year-on-year price increases, down from 11.21 percent to 10.48 percent, but overall there were slightly stronger price pressures elsewhere in the manufacturing sector.

Consumer inflation data are scheduled for release later today.

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.