India's consumer price index rose 0.71 percent on the year in November, picking up from an increase of just 0.25 percent in October. That was the lowest level of inflation on record but the increase in November still leaves headline inflation well below the Reserve Bank of India's target range of two percent to six percent.

The increase in headline inflation was driven by a smaller, albeit still substantial, fall in food and beverage prices . These fell 2.78 percent on the year after dropping 3.72 percent previously, with ongoing weakness largely reflecting the impact of favourable monsoon rainfall patterns. Fuel and light charges rose 2.32 percent on the year, up from 1.98 percent previously. Inflation in urban areas rose from 0.88 in October to 1.40 percent in November, while inflation in rural areas rebounded from minus 0.25 percent to 0.10 percent.

At the RBI's most recent policy meeting, held last week, officials cut the benchmark repurchase rate by 25 basis points from 5.50 percent to 5.25 percent, in line with the consensus forecast. Officials have cut this rate by 125 basis points since the start of the year but this move followed no change in the previous two meetings in August and October.

In the statement accompanying their decision, RBI officials noted that the fall in inflation in October was faster than anticipated and contrary to normal seasonal patterns. With the inflation outlook now softer, officials have revised their inflation forecast for the current fiscal year downward from 2.6 percent to 2.0 percent.

A slightly less scary 0.6 percent is expected for November versus 0.25 percent in October.

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.