India's consumer price index rose 5.08 percent on the year in June, picking up from an increase of 4.75 percent in May. This is the first increase in headline inflation in six months and takes it further above the mid-point of the Reserve Bank of India's target range of two percent to six percent.

Higher headline inflation was largely driven by food prices. Food and beverage prices rose 8.36 percent on the year, up from the 7.87 percent increase recorded previously, while fuel and light charges fell 3.66 percent on the year after a previous decline of 3.83 percent. Inflation in urban areas rose from 4.21 percent in May to 4.39 percent in June, while inflation in rural areas picked up from 5.34 percent to 5.66 percent.

At the RBI's most recent policy meeting, held last month, officials left policy rates on hold at 6.50 percent. They advised then that they expect base effects will send inflation lower in the near-term before it increases again. They note, however, that the path of disinflation towards the midpoint of their target range of two percent to six percent will depend heavily on the potential impact of weather events on food prices. Today's data showing an increase in headline inflation, along with other data published today showing stronger industrial production growth, suggest upside risks to the inflation outlook will remain the RBI's primary concern in upcoming policy meetings.

Consumer prices are expected to hold steady in June at an annual 4.80 percent versus 4.75 and 4.83 percent in the two prior months.

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.