CPI inflation decelerated again in August but by slightly less than expected. Even so, at 3.66 percent, down from a weaker revised 3.69 percent in July, the annual rate still posted a new series low and was fully 1.5 percentage points short of its level in January.
August's headline decline reflected a fall in the urban rate as rural prices edged a little higher. Hence, the former slowed to a 2.67 percent annual rate, down from 2.94 percent in July, while the latter was 0.12 percentage points firmer at 4.47 percent. Overall food inflation was 2.20 percent, up 5 ticks from last time, while clothing and footwear weighed in at 5.77 percent, housing at 4.68 percent and fuel and light at 5.70 percent. The miscellaneous category recorded a 3.08 percent yearly rate.
Having already seen WPI inflation also plunge to an historic low last month (annual rate minus 4.95 percent), today's CPI update will ensure that there is plenty of pressure from government and businesses alike for the RBI to deliver another, ideally sizeable, interest rate cut at its 29th September policy meeting. Indeed, amidst increasing signs that the central bank's inflation targets could be significantly undershot, anything less than a 50 basis point reduction would now probably come as a disappointment to financial markets.
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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