Thu Feb 15 00:30:00 CST 2018

Actual Previous
M/M % change 0.09% -0.52%
Y/Y % change 2.84% 3.58%

India's wholesale price index increased by 2.84 percent in January, down from 3.58 percent in December. The index rose 0.09 percent on the month after falling 0.52 percent previously. Consumer price index data published earlier in the week also showed a decline in headline inflation from 5.21 percent in December to 5.07 percent in January, still well above the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.

The fall in headline WPI inflation in January largely reflects a weaker increase in food prices, which account for around 15 percent of the index. These increased by 3.00 percent on the year in January, down from 4.72 percent year in December, with year-on-year price gains in vegetables still very strong but well down on the previous month. Prices for eggs, meat, and fish also moderated. The year-on-year increase in fuel and power prices (around 13 percent of the index) also slowed from 9.16 percent in December to 4.08 percent in January, while inflation for manufactured products (around 64 percent of the total index) rose slightly from 2.61 percent to 2.78 percent.

Despite this fall in WPI and CPI inflation in January, officials at the Reserve Bank of Inflation forecast headline CPI inflation to remain above 5.0 percent in the first half of the upcoming fiscal year and then to fall to around 4.5 percent in the second half,. However, they also argue that risks to this forecast are skewed to the upside and highlighted their commitment to bring inflation back down to around the mid-point of their target range of 2.0 percent to 4.0 percent.

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.