July 12, 2016 07:00 CDT

Consensus Actual Previous
Change Y/Y 5.73% 5.77% 5.76%

CPI inflation was much as expected in June. At 5.77 percent, the annual rate was essentially unchanged from the mid-quarter print, the first time that it has not risen significantly since March.

The stability of the overall CPI rate masked a drop in the rural sector (6.20 percent after 6.45 percent) that was effectively offset by a rise in the urban sector (5.26 percent after 4.89 percent). Indeed, aggregate prices would have been rather softer but for a pick-up in food where charges were up an annual 7.79 percent after a 7.47 percent gain last time.

Elsewhere, inflation stood at 5.01 percent in clothing and footwear, 5.46 percent in housing and 2.92 percent in fuel and light. Miscellaneous recorded a 3.85 percent rate.

Today's data should leave the RBI wary about cutting interest rates again too soon although that may change when the new Governor arrives in September but they ought to at least keep the door open to a possible ease later in the year.

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.