The WPI in wholesale items in March 2023 declined by 1.592 percentage points (bps), to 1.34%. However, March 2023 saw a decrease in CPI to 5.66 percent from 5.70 percentage.
Inflation, defined as an increase in the price level of goods and services over a prolonged period of time, is often measured using either the WPI or the CPI. The stock market is usually very sensitive to inflation. The stock market’s many subsectors may react differently to the same shift in the WPI or CPI.
The cost of borrowing money and interest rates may rise
The cost of borrowing money and interest rates may rise if inflation is strong. Many businesses’ bottom lines suffer as a result of this.
As a result, stock values may fall, especially in industries that are vulnerable to changes in interest rates, such as banking, real estate, and infrastructure.
Certain industries, however, such fast-moving consumer goods (FMCGs) and pharmaceuticals, can see healthy development even during periods of inflation because they provide services or items that consumers need regardless of the state of the economy.
Rises in the WPI and CPI are viewed as bad news for the stock market
Rises in the WPI and CPI are viewed as bad news for the stock market since they suggest consumers will have to spend more to maintain their standard of life. Conversely, falling WPI and CPI often result in reduced interest rates, which can boost stock values across the board but especially in industries sensitive to shifts in the price of borrowing.
Many factors, including the state of the economy and investor attitude at any one time, might have a greater or lesser effect on the stock market than changes in the WPI or CPI.
If you want to make a smart investment, you need to look beyond WPI and CPI to the patterns in the stock market and other economic indicators.