Mon Oct 16 01:30:00 CDT 2017

Actual Previous
Y/Y % change 2.6% 3.24%
M/M % change -0.44% 0.79%

India's wholesale price index increased by 2.6 percent on the year in September, down from 3.24 percent in August. The index fell 0.44 percent on the month in September after advancing 0.79 percent in August.

The moderation in WPI inflation in September mainly reflects weaker growth in food p[rices, which account for around 15 percent of the index. These grew by 2.04 percent on the year in September, down from 5.75 percent in August, with year-on-year growth in vegetable prices decelerating sharply from 44.91 percent to 15.48 percent. The year-on-year increase in fuel and power prices (around 13 percent of the index) also moderated from 9.99 percent to 9.01 percent, while inflation for manufactured products (around 64 percent of the total index) was slightly stronger, picking up from 2.45 percent in August to 2.72 percent in September.

CPI data for September, published last week, showed headline consumer inflation was unchanged at 3.28 percent in September, below the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. This stability, however, was also driven by weaker growth in vegetable prices, and officials continue to expect broader price pressures to build in the near-term.

At its most recent policy review, held earlier in the month, the RBI kept policy rates on hold but revised up its forecasts for headline consumer inflation in the current fiscal year, reflecting factors such as the newly-introduced goods and services tax and higher global oil prices. Officials also expressed concern that planned public sector pay rises could push headline inflation higher than currently expected, but note that food price increases may turn out to be weaker than 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.