Loading
Market Intelligence › News And Updates
How inflation data is built and what the market looks for in it
Published by The Retail Trader · AUG 09, 2026 · Features
Every month the inflation figures come out, and two different numbers tell two different stories. Both are correct — they are simply measuring different things.
The consumer price index measures how much more expensive the purchases of an ordinary household have become. Food, housing, transport, education, healthcare — all carry a weight in it.
The RBI's inflation target is set on this CPI. So for the market, CPI is the number that is directly tied to policy.
The wholesale price index measures wholesale prices — at the factory and mandi level. It does not include services, as CPI does.
WPI often moves before CPI and gives a rough indicator of companies' input costs. So if you are thinking about margins, WPI is more useful; if you are thinking about policy, CPI.
Food and fuel prices swing widely with the weather and global factors. What is left after removing them is called core inflation.
Policymakers watch core more closely, because it tells whether inflation has settled deep into the economy or is just a matter of one season. If the headline falls but core does not — that is a warning.
What is watched when the data comes out:
• The difference from expectation — the number itself matters less; whether it came in above or below the estimate is what counts.
• Direction — the trend over three to four months, not one month's number.
• Base effect — what the number was last year. On a low base even a small rise shows up as a large percentage.
• The behaviour of core — more than the headline, it tells whether there is room for a rate cut or not.
High inflation hurts from two sides: companies' input costs rise, and the fear of rate hikes puts pressure on valuations.
But the effect is not the same on every company. Those with pricing power — that is, those who can pass inflation on to the customer — keep their margins. This is why, in times of inflation, pricing power becomes the most talked-about thing.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.