India's consumer price index rose 5.55 percent on the year in November, picking up from an increase of 4.87 percent in October and taking inflation further away from the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent. This follows declines in headline inflation in each of the two previous months.

The acceleration in headline inflation was largely driven by food and beverage prices, which account for more than half the weight of the CPI index. These prices rose 8.02 percent on the year after increasing 6.24 percent previously. Fuel and light charges, around 8 percent of the index, fell 0.77 percent on the year after falling 0.39 percent previously. Inflation in urban areas increased from 4.62 percent in October to 5.26 percent in November, while inflation in rural areas picked up from 5.12 percent to 5.85 percent.

At the RBI's most recent policy meeting, held last week, officials left policy rates on hold at 6.50 percent. They noted then that headline inflation may be volatile in the near-term, due to base effects and the impact of adverse weather conditions on food prices, but they also expressed confidence that it will trend lower in coming quarters. Officials concluded that"monetary policy must continue to be actively disinflationary", suggesting that upside risks to the inflation outlook will likely remain their primary focus in upcoming meetings.

Consumer prices are expected to re-accelerate to 5.70 percent on the year in November versus October's 4.87 percent and following September's 5.02 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.