Inflation accelerated in January but not by much and by rather less than market expectations. At 5.11 percent the yearly increase in overall consumer prices was up less than 0.4 percentage points versus its revised December rate but still well short of the market consensus. However, note that today's report incorporates a new base year (2011/12 from 2009/10) as well as a revised basket that increases the weight on clothing and footwear and miscellaneous items at the expense of fuel and light and food and beverages.
The headline rate reflected a 5.25 percent rate in the rural sector and a 4.96 percent rate in Urban India.
As January's surprise cut in interest rates clearly demonstrated, the RBI is quite prepared to respond to surprisingly soft inflation news and today's weaker than expected CPI report should convince the monetary authority that its action was fully justified. Indeed, with the central bank having already expressed its scepticism about the buoyancy of the overall economy described by the newly revised national accounts statistics, today's data should leave financial markets cautiously hopeful that another reduction in official rates may not be too far away.
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.
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