India's consumer price index rose 6.44 percent on the year in February, down slightly from 6.52 percent in January and slightly above the consensus forecast of 6.35 percent. Inflation has been above the top of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent for all but two months since the start of 2022.

Food and beverage prices, which account for more than half the weight of the CPI index, were again a major factor keeping headline inflation relatively high in February. These prices rose 6.26 percent on the year after increasing 6.19 percent previously. Fuel and light charges, around 8 percent of the index, moderated but remained strong, rising 9.90 percent on the year after increasing 10.84 percent previously. Inflation in urban areas picked up from 6.00 percent in January to 6.10 percent in February, but inflation in rural areas eased from 6.85 percent to 6.72 percent.

Reflecting officials' concerns that high levels of inflation may become entrenched, the RBI has increased policy rates by a cumulative 250 basis points since May 2022, including a 25 basis point increase at their most recent meeting last month. Officials also indicated that further rate hikes will be considered in upcoming meetings until inflation returns to the mid-point of the target range, with today's data increasing the chances policy will be tightened further.

India's consumer inflation is expected to ease slightly to 6.35 percent in February from 6.52 percent in January, but that would be still above the Reserve Bank of India's target of 4 percent, or in a range of 2 percent to 6 percent. The CPI annual rate dipped from 6.77 percent in October to 5.88 percent in November and 5.72 percent in December.

The RBI's policy board will digest this and other indicators to judge whether it will need to continue tightening policy at its April meeting after raising rates for a total of 250 basis points since May 2022, including a 25 basis point hike to 6.50 percent in February.

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.