India's consumer price index rose 1.54 percent on the year in September, moderating from an increase of 2.07 percent in July. This takes headline inflation back below the Reserve Bank of India's target range of two percent to six percent for the second time in three months.

The move lower in headline inflation was driven by food and beverage prices which fell 1.37 percent on the year after rising 0.05 percent previously. This largely reflects the impact of favourable monsoon rainfall patterns. Fuel and light charges rose 1.98 percent on the year after a previous increase of 2.49 percent. Inflation in urban areas fell from 2.47 in August to 2.04 percent in September, while inflation in rural areas slowed from 1.69 percent to 1.07 percent.

At the RBI's most recent policy meeting, held earlier this month, officials left the benchmark repurchase rate on hold at 5.50 percent after lowering this rate by 100 basis points since the start of the year. In the statement accompanying the decision, officials lowered their inflation forecasts for this fiscal year from 3.1 percent to 2.6 percent, citing the impact of weather conditions on food prices. They also announced that they will retain the policy stance as"neutral as they consider incoming data.

The consensus sees CPI down to a modest 1.5 percent increase on year in September versus 2.1 percent in August.

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.