Thu Mar 12 07:00:00 CDT 2015

Consensus Actual Previous
Change Y/Y 5.20% 5.37% 5.11%

Inflation was a little firmer than expected last month. At 5.37 percent, the annual increase in consumer prices was up 0.26 percentage points versus its rate at the start of the year but still well below the level posted over most of 2014.

Having delivered another surprise intermeeting cut in interest rates just last week, the RBI has shown it is prepared to respond to a combination of low inflation and (despite what the new national accounts might indicate), weak growth. Today's CPI update, which means inflation is still comfortably short of its 6 percent interim target mark for next January, should leave the door open to additional monetary easing, albeit probably not quite as soon as next month's bi-monthly policy statement.

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.