January 16, 2017 12:30 CST

Consensus Actual Previous
Y/Y % change 3.50% 3.39% 3.15%
M/M % change -0.16% 0.1%

Wholesale price inflation accelerated less quickly than anticipated in December. A 0.16 percent monthly fall in the headline index put the yearly rate at 3.39 percent, up just 0.14 percentage points versus its November reading.

The pick-up was led by fuel where the annual rate climbed 1.58 percentage points to 8.65 percent. Manufacturing (3.67 percent after 3.20 percent) also saw a faster pace of price rises but a partial offset was provided by a marked decline in food (minus 0.70 percent after 1.54 percent).

Following the drop in December CPI inflation reported last week, today's WPI update is unlikely to have any major significant on RBI policy.

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.