Tue Nov 14 00:30:00 CST 2017

Actual Previous
M/M % change 1.05% -0.44%
Y/Y % change 3.59% 2.6%

India's wholesale price index increased by 3.59 percent on the year in October, accelerating from 2.60 percent in September and the highest level since April. The index advanced 1.05 percent on the month in October after dropping 0.44 percent in September. Consumer price index data published earlier in the week also showed an increase in headline inflation from 3.28 percent in September to 3.58 percent in October, closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent..

Similar to the increase in CPI inflation, the increase in WPI inflation in October was partly driven by vegetable prices. Food prices, which account for around 15 percent of the index, increased by 4.30 percent on the year in October, up from 2.04 percent in September, with year-on-year growth in vegetable prices accelerating sharply from 15.48 percent to 36.61 percent. The year-on-year increase in fuel and power prices (around 13 percent of the index) also increased from 9.01 percent to 10.52 percent, though inflation for manufactured products (around 64 percent of the total index) eased slightly from 2.72 percent in September to 2.62 percent in October.

The increase in headline WPI and CPI inflation in October is in line with officials' view that price pressures are likely to build in the near-term. At its most recent policy review, held early October, the RBI kept policy rates on hold but revised up its forecasts for headline CPI inflation in the current fiscal year, reflecting factors such as the newly-introduced goods and services tax and higher global oil prices.

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.