India's consumer price index rose 7.44 percent on the year in July, spiking sharply from an increase of 4.81 percent in June. Inflation is now back above the Reserve Bank of India's target range of 2.0 percent to 6.0 percent for the first time in seven months.

Today's spike in inflation is in line with an assessment made by the RBI at their policy meeting last week. They predicted such a spike would occur in response to"supply disruptions due to adverse weather conditions", noting that rainfall had been uneven in parts of the country. Although they left policy rates on hold at 6.50 percent at that meeting, they promised to"maintain a close vigil" on incoming inflation data, suggesting that upside risks to the inflation outlook remain their primary focus.

Food and beverage prices, which account for more than half the weight of the CPI index, drove the increase in headline inflation in July, advancing 10.57 percent on the year after increasing 4.63 percent previously. Vegetable prices were particularly impacted by weather conditions, increasing 37.34 percent on the year. Fuel and light charges, around 8 percent of the index, rose at a slightly slower pace, up 3.67 percent on the year after increasing 3.92 percent previously. Inflation in urban areas increased from 4.96 percent in June to 7.20 percent in July, while inflation in rural areas increased from 4.78 percent to 7.63 percent.

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.