August 12, 2016 07:00 CDT

Consensus Actual Previous
Change Y/Y 5.90% 6.07% 5.77%

July consumer price index increased 6.07 percent on the year, up from 5.77 percent in June. The increase overall CPI rate saw rural sector prices increase to 6.66 percent from 6.20 percent in June. Urban sector prices increased 5.39 percent, up from 5.26 percent.

Aggregate prices would have been rather softer but for a pick-up in food where charges were up an annual 8.35 percent after a gain of 7.79 percent. Elsewhere, inflation stood at 5.23 percent in clothing and footwear, 5.42 percent in housing and 2.75 percent in fuel and light.

Earlier in the week, the Reserve Bank of India left its interest rate unchanged. With a new Governor as yet unnamed, the Bank should be wary about cutting rates too soon again given the upward movement in inflation.

The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Within the overall CPI basket, food (47 percent) has easily the largest weight of any of the major components and a separate consumer foods price index is also released. Monthly and annual changes in the CPI provide widely used measures of inflation and the latter is the policy target of the Reserve Bank of India (RBI).

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.