Mon Jul 13 07:00:00 CDT 2015

Consensus Actual Previous
Change Y/Y 5.10% 5.40% 5.01%

Consumer price inflation was rather higher than expected in June. At 5.40 percent, the yearly rate was up 0.39 percentage points versus its mid-quarter outturn and at its highest level since last September. However, the June print was only fractionally above the 4.87-5.37 percent range seen over the first five months of 2015 and still well short of both the 2014 average (6.71 percent) and the 6 percent interim (January 2016) target.

The acceleration in the headline index reflected a rise in the urban rate from 4.41 percent to 4.55 percent and, to a greater extent, a 0.55 percentage point increase in the rural rate to 6.07 percent. Within the overall basket food prices were especially firm, jumping to a 5.48 percent annual rate from 4.80 percent last time. Clothing and footwear weighed in at a 6.34 percent rate while housing recorded 4.48 percent and fuel and light 5.92 percent.

Having seen industrial production slow surprisingly sharply in May (2.7 percent from 3.4 percent) and last month's PMI composite output index slide below 50, June's uptick in inflation is unlikely to dampen speculation about a fourth RBI repo cut later in the year. That said, the increase in food inflation will be something of which the RBI takes particular notice and developments here will be watched very closely over coming months during the key monsoon period.

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.