Mon Jan 12 06:00:00 CST 2015

Consensus Actual Previous
Change Y/Y 5.4% 5.00% 4.38%

For the first time in five months CPI inflation accelerated in December. However, at 5.00 percent, the headline annual rate was up less than 0.7 percentage points versus its record November low to secure its second weakest ever print. The outcome was also comfortably short of market expectations.

Urban inflation at year-end stood at 5.32 percent, up from 4.69 percent in mid-quarter while the rural rate was 0.22 percentage points firmer at 4.71 percent. Combined food inflation was 4.78 percent versus 3.14 percent and was mainly responsible for the increase in the overall rate.

Today's smaller than anticipated rise in inflation is unlikely to dent significantly hopes for a cut in RBI interest rates early next month. Even so, it remains a very close call. With the 2015/16 budget also due to be delivered in February but after the central bank's announcement, any policy relaxation is far from certain and the RBI has made plain its reluctance to be seen easing too soon. However, recent economic developments would not seem to have jeopardised the chances of inflation meeting its 6 percent target for January 2016 and recall that in December RBI Governor Raghuram Rajan clearly dangled the carrot of a cut if the CPI behaved itself.

Consumer Price Indexes (CPI) measure changes over time in general level of prices of goods and services that households acquire for the purpose of consumption. The data are released for previous month and are not seasonally adjusted.

CPI numbers are widely used as a macroeconomic indicator of inflation, as a tool by governments and central banks for inflation targeting and for monitoring price stability, and as deflators in the national accounts. CPI is also used for indexing dearness allowance to employees for increase in prices. CPI is therefore considered as one of the most important economic indicators.

CPI numbers presently compiled and released at national level for India reflect the fluctuations in retail prices pertaining to specific segments of population in the country -- industrial workers, agricultural labourers and rural labourers. These indexes do not encompass all the segments of the population in the country and as such do not reflect true picture of the price behavior in the country. To overcome the above, the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation has started compiling new series of CPI for the entire urban population or CPI (Urban) and CPI for the entire rural population or CPI (Rural), which reflect the changes in the price levels of various goods and services consumed by the urban and rural population.