Rural households pay more for vegetables and cereals as compared to their urban counterparts, government data show. Also, inflation in rural areas continues to be higher than urban areas and that impacted the headline inflation in September in a big way.
Retail inflation based on Consumer Price Index (CPI) surged to a 9-month high of 5.5 per cent in September. While headline inflation rate in urban areas rose to nearly 5 per cent in September from 3.1 per cent of August, that jumped to 5.9 per cent from 4.2 per cent in rural area. It may be noted that weights for various product categories vary for urban and rural inflation.
Food inflation
Explaining this, Anil K Sood, Professor at Institute for Advanced Studies in Complex Choices, said that the most important factor causing the rural inflation to be higher is food inflation, indeed. While rural food inflation rate at 8.3 per cent is lower than urban inflation of 8.6 per cent, the higher weightage of 54.18 per cent for food and beverages for rural areas results in rural weighted inflation being higher by 1.37 per cent.
“We observe a much higher reduction (-3.25 per cent), in urban areas (with an index weight of 5.58), compared to a marginal reduction of -0.33 per cent in rural areas where the weight is 7.94. The net weighted impact reduces urban inflation by 0.16 per cent,” Sood said.
The SBI research report found that the elevated rural inflation, continuing to be higher than the urban inflation, as also the sharpening of gap between rural and urban inflation trends (7th month in a row) results in “rural household prices being higher than urban counterparts and has driven the overall inflation, a direct fallout of rural basket of food items weight being much higher than the urban weight.”
Apart from the food and beverages inflation (particularly increase in price of vegetables), other components which contributed to higher inflation in rural areas are household goods and services, and personal care and effects (particularly gold). In urban areas apart from the above two, components of miscellaneous, education and health inflation too increased.
The SBI report also took note of State-wise Inflation and found that Bihar clocked the highest inflation rate of 7.5 per cent followed by Chhattisgarh at 7.4 per cent and UP at 6.7 per cent. “Except 6 States, all other 16 State’s rural inflation is higher than the urban inflation in September. The trend is continuing from earlier months,” it said.
A report by Crisil said that lowest income group had more impact because of rise in the inflation. “The poorest segments (bottom 20 per cent) in both rural and urban areas saw the sharpest rise in inflation rates compared with their richer counterparts since food inflation surged,” It said.