Thu Apr 12 07:00:00 CDT 2018

Actual Previous
Change Y/Y 4.28% 4.44%

India's consumer price index increased by 4.28 percent in March, down from 4.44 percent on the year in February. This is third consecutive decline in inflation and takes it closer to the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent.

Food and fuel prices again drove the fall in headline inflation in March, as they did in January and February. Food and beverage prices (around 54 percent of the index) increased by 3.01 percent on the year in march, down from 3.38 percent in February, with the year-on-year increase in vegetable prices slowing from 17.57 percent to 11.70 percent. Fuel and light prices rose 5.73 percent on the year, down from 6.80 percent previously, whereas the year-on-year increases in clothing and footwear prices and housing costs were again little changed from last month.

Inflation in urban areas fell from 4.52 percent in February to 4.12 percent in March, while inflation in rural areas slowed only slightly from a revised 4.45 percent to 4.44 percent.

Earlier this month the Reserve Bank of India left policy rates on hold and revised down their near-term inflation forecasts in response to the recent weakness in food and fuel prices. Headline inflation is now forecast to be between 4.7 percent and 5.1 percent in the first half of the new fiscal year, compared with a previous forecast for above 5.0 percent, and to fall to 4.4 percent in the second half, compared with the previous forecast of 4.5 percent.

In addition to these forecasts implying that the recent declines in headline inflation will reverse in coming months, officials continue to argue that risks to their forecasts are skewed to the upside. Officials also reiterated their commitment to keeping inflation close to 4.0 percent, suggesting that rate increases might be considered if price pressures do pick up as anticipated.

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.