Inflation surprisingly decelerated last month. At 5.17 percent the yearly increase in the headline CPI was down 0.2 percentage points versus its mid-quarter reading, well below market expectations and at its lowest mark so far in 2015.
March's slide reflected slowing prices in both the urban and rural sectors. Inflation in the former dropped from 4.95 percent to 4.75 percent while the latter recorded 5.58 percent after a 5.79 percent annual rate last time. Vegetable prices eased from 13.01 percent to 11.26 percent and clothing and footwear dipped from 6.38 percent to 6.27 percent. In fact the overall picture would have been weaker still but for stronger energy charges as combined fuel and light inflation climbed 0.35 percentage points to 5.07 percent.
The first decline in overall inflation since last February should be well received by the RBI. The central bank suggested that it had no real policy bias last week and indicated that further moves on interest rates would be linked to economic developments, particularly with regard to inflation. To this end, and despite the unanticipated buoyancy of industrial production in February, the deceleration in March inflation should boost hopes that another rate cut might not be far off.
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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