Tue Jun 12 07:00:00 CDT 2018

Consensus Actual Previous
Change Y/Y 4.83% 4.87% 4.58%

India's consumer price index increased by 4.87 percent on the year in April, up from 4.58 percent in April. Headline inflation has now risen two months in a row and has for the last six months been above the the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. RBI officials have stressed in recent months their commitment to keep headline inflation close to 4.0 percent.

The increase in headline inflation in April largely reflects a stronger year-on-year increases in food and beverage prices (around 54 percent of the index). These increased by 3.37 percent on the year in April, up from 3.01 percent in March, with the year-on-year increase in fuel and light charges also picking up from 5.73 percent to 5.80 percent. Housing costs rose 8.40 percent on the year, moderating from 8.50 percent previously. Inflation in urban areas increased from 4.42 percent in April to 4.72 percent in May, while inflation in rural areas picked up from 4.67 percent to 4.88 percent.

At their latest policy review, held last week, the RBI's Monetary Policy Committee increased policy rates and revised up their near-term inflation forecasts in response to to pick-up in underlying price pressures seen in April. Headline inflation is now forecast to be 4.8 percent to 4.9 percent in the first half of the new fiscal year, compared with a previous forecast of between 4.7 percent and 5.1 percent, and to fall to 4.7 percent in the second half, compared with the previous forecast of 4.4 percent.

At last week's meeting officials also noted several risks to the inflation forecast that could prompt further upward revisions to these forecasts in coming months, while stressing again their determination to keep inflation close to 4.0 percent. This suggests further rate increases may be considered in order to help bring headline inflation back toward this level. The next policy review is scheduled for early August.

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.