Mon Feb 12 06:00:00 CST 2018

Actual Previous
Change Y/Y 5.07% 5.21%

India's consumer price index increased by 5.07 percent on the year in January, down from 5.21 percent in December. This is first monthly decline in inflation in four months but leaves it well above the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.

Food and fuel prices were the main factors driving the small fall in headline inflation. Food and beverage prices (around 54 percent of the index) increased by 4.58 percent on the year in January, down from 4.85 percent in December, with the year-on-year increase in vegetable prices slowing from 29.13 percent to 26.97 percent. Fuel and light prices also increased at a slightly slower pace, up 7.73 percent on the year in January after increasing 7.90 percent in December. Housing prices, however, rose by 8.33 percent on the year, a little stronger than 8.25 percent in December, while the year-on-year increase in clothing and footwear prices picked up from 4.80 percent to 4.94 percent.

Inflation in urban areas eased from 5.09 percent in December to 4.93 percent in January, while inflation in rural areas slowed from 5.27 percent to 5.21 percent.

Last week the Reserve Bank of India left policy rates on hold and retained a "neutral" stance. Officials also highlighted their commitment to keeping inflation close to 4.0 percent. Looking ahead, however, officials forecast headline inflation to be above 5.0 percent in the first half of the upcoming fiscal year and then to fall to around 4.5 percent in the second half, arguing that risks to this forecast are skewed to the upside. Given their undertaking to bring inflation towards 4.0 percent, officials may begin to consider rate increases if inflation remains too close to the top of their target range.

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.