Mon Nov 13 06:00:00 CST 2017

Consensus Actual Previous
Change Y/Y 3.46% 3.58% 3.28%

India's consumer price index increased by 3.58 percent on the year in October, up from 3.28 percent in September, close to the consensus forecast of 3.46 percent, and closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.

Vegetable prices were again a major factor driving the change in headline inflation. Food and beverage prices (around 54 percent of the index) increased by 2.26 percent on the year in October, up from 1.76 percent in September, with the year-on-year increase in vegetable prices accelerating from 3.92 percent to 7.47 percent. Housing prices also increased at a faster pace, up 6.68 percent on the year in October from 6.10 percent in August, while the year-on-year increase in fuel and light prices accelerated from 5.56 percent to 6.36 percent. Prices for clothing and footwear also grew at a faster pace in October than in September.

Inflation in urban areas increased from 3.44 percent in September to 3.81 percent in October, while inflation in rural areas picked up from 3.15 percent to 3.36 percent.

The increase in headline inflation in October is in line with officials' view that price pressures are likely to build in the near-term. At its most recent policy review, held early October, the RBI kept policy rates on hold but revised up its forecasts for headline inflation in the current fiscal year, reflecting factors such as the newly-introduced goods and services tax and higher global oil prices. Officials also expressed concern that planned public sector pay rises could push headline inflation higher than currently expected. Variability in food prices will likely continue to play a major role in monthly changes in headline inflation, but today's data show that price increases also strengthened for other important consumer goods.

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.