Wed Mar 14 01:30:00 CDT 2018

Actual Previous
Y/Y % change 2.48% 2.84%
M/M % change 0.00% 0.09%

India's wholesale price index increased by 2.48 percent on the year in February, down from 2.84 percent in January. Consumer price index data published earlier in the week also showed a decline in headline inflation from 5.07 percent to 4.44 percent, closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. The index was flat on the month after increasing 0.09 percent previously.

As with CPI inflation, the fall in headline WPI inflation in February largely reflects a weaker increase in food and fuel prices. Food prices, which account for around 15 percent of the index, increased by just 0.88 percent on the year in February, down from 3.00 percent in January, with year-on-year price gains in vegetables falling from 40.77 percent to 15.26 percent. The year-on-year increase in fuel and power prices (around 13 percent of the index) also slowed from 4.08 percent in January to 3.81 percent in February. In contrast, inflation for manufactured products (around 64 percent of the total index) picked up from 2.78 percent to 3.04 percent.

Last month the Reserve Bank of India left policy rates on hold and retained a "neutral" stance. Officials also highlighted their commitment to keeping CPI inflation close to 4.0 percent but noted that that risks to their forecasts are skewed to the upside. The declines in headline CPI and WPI inflation seen in the last two months, however, may reassure officials that price pressures remain relatively contained and strengthen the case for policy rates to stay on hold for longer.

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.