India's consumer price index rose 2.07 percent on the year in August, picking up from an increase of 1.61 percent in July. This takes headline inflation back within the Reserve Bank of India's target range of two percent to six percent after it had dipped below that range in July for the first time since 2019.

The move higher in headline inflation was driven by food and beverage prices which rose 0.05 percent on the year after falling 0.84 percent previously. Fuel and light charges rose 2.49percent on the year after a previous increase of 2.67 percent. Inflation in urban areas rose from 2.10 percent in July to 2.47 in August while inflation in rural areas picked up from 1.18 percent to 1.69 percent.

At the RBI's most recent policy meeting, held last month, officials left the benchmark repurchase rate on hold at 5.50 percent after lowering this rate by 100 basis points over the previous three meetings. In the statement accompanying the decision, officials advised that favourable weather conditions will likely keep food price pressures contained and lowered their inflation forecasts for this fiscal year from 3.7 percent to 3.1 percent. They also announced that they will retain the policy stance as"neutral as they consider incoming data.

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.