India's wholesale price index fell 3.48 percent on the year in May, weakening further from a decline of 0.92 percent on the year in April. WPI inflation has been trending lower since mid-2022 and is now at its lowest level since 2015.

This fall in headline WPI inflation was broad-based. Manufacturing prices, which account for around 64 percent of the index, fell 2.97 percent on the year after dropping 2.42 percent previously, while fuel prices, around 13 percent of the index, dropped 9.17 percent, down sharply from a previous increase of 0.93 percent. The year-over-year increase in food prices, around 15 percent of the index, weakened from an increase of 0.17 percent to a fall of 1.59 percent.

Consumer price data published earlier in the week showed headline inflation dropped from 4.7 percent in April to 4.25 percent in May, closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. The RBI left policy rates on hold at its most recent meeting earlier in the month but, despite the moderation in both CPI and WPI inflation in May, officials have indicated that they remain wary of upside risks to the inflation outlook.

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.