Thu Sep 14 01:30:00 CDT 2017

Actual Previous
M/M % change 0.79% 1.09%
Y/Y % change 3.24% 1.88%

India's wholesale price index increased by 3.24 percent on the year in August, up from 1.88 percent in July. This is second consecutive increase in the WPI inflation rate after three months of sharp declines. The index rose 0.79 percent on the month in August after advancing 1.09 percent in July.

The increase in WPI inflation in August was largely driven by fuel and power prices, which account for around 13 percent of the index. These increased by 9.99 percent on the year in August, accelerating sharply from 4.37 percent in July. Food prices, around 15 percent of the index, also grew at a faster pace in August, up 5.75 percent on the year after increasing by 2.15 percent in July. Inflation for manufactured products (around 64 percent of the total index) was also slightly stronger, picking up from 2.18 percent in July to 2.45 percent in August.

Today's data follows the release of CPI data earlier in the week which also showed stronger consumer inflation in August and are broadly in line with officials' expectations for price pressures to build in the near-term. Following sharp drops in both CPI and WPI inflation earlier in the year, the RBI cut policy rates at its most recent policy review in early August, but also noted that these falls largely reflected the impact of base effects and lower food prices which would both likely fade in coming months. The subsequent increases in both CPI and WPI inflation in July and August provide support for this view and suggest there is limited scope for another rate cut at the RBI's next policy review, scheduled for early October.

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.