India's consumer price index rose 5.66 percent on the year in March, down from 6.44 percent in February and below the consensus forecast of 5.80 percent. This is the lowest inflation rate since late 2021 and brings inflation back within the Reserve Bank of India's target range of 2.0 percent to 6.0 percent for only the third month since the start of 2022. The index rose 0.23 percent on the month after increasing 0.17 percent previously.

Food and beverage prices, which account for more than half the weight of the CPI index, were the major factor driving headline inflation lower in March. These prices rose 5.11 percent on the year after increasing 6.26 percent previously. Fuel and light charges, around 8 percent of the index also rose at a slower pace, up 8.91 percent on the year after increasing 9.90 percent previously. Inflation in urban areas fell from 6.10 percent in February to 5.89 percent in March, while inflation in rural areas dropped more sharply from 6.72 percent to 5.66 percent.

The RBI left policy rates on hold at their most recent meeting held last week, after increasing them by a cumulative 250 basis points since May 2022. Officials stressed that they"remain resolutely focused on aligning inflation with the target" but also noted that previous policy tightening is"working through the system". They also promised to"remain focused" on withdrawing policy accommodation, though the fall in inflation shown today suggests officials may keep rates on hold again in upcoming meetings.

Consumer prices are expected to ease sharply to 5.80 percent on the year in March versus 6.44 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.