India's consumer price index rose 3.65 percent on the year in August, up slightly from an increase of 3.54 percent in July. This keeps headline inflation below the mid-point of the Reserve Bank of India's target range of two percent to six percent for the second consecutive month after it had been above that level since 2019.

The small move higher in headline inflation was driven by food and fuel prices. Food and beverage prices rose 5.30 percent on the year, up from the 5.06 percent increase recorded previously, while fuel and light charges fell 5.31 percent on the year after a previous decline of 5.48 percent. Inflation in urban areas rose from 3.03 percent in July to 3.14 percent in August, while inflation in rural areas picked up from 4.10 percent to 4.16 percent.

At the RBI's most recent policy meeting, held last month, officials left policy rates on hold at 6.50 percent. Officials noted that base effects and the impact of weather on food prices could result in some volatility in inflation in the near-term, but they repeated their earlier pledge to maintain their"disinflationary stance" until"a durable alignment of the headline CPI inflation with the target is achieved".

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.