Rural inflation higher than urban for 13 straight months, impacting States such as Bihar, Assam and Odisha
Rural areas are feeling the sting of inflation more than urban areas with CPI inflation in rural areas consistently outpacing urban inflation for 13 consecutive months. This is making States with predominantly rural areas, such as Bihar and Odisha, experience higher inflation compared with the all-India inflation.
In June 2023, rural inflation was 4.8 per cent, slightly lower than the urban rate of 5 per cent. However, by July 2023, rural inflation had surged to 7.6 per cent, surpassing the urban rate of 7.2 per cent. Despite minor fluctuations, rural inflation continued to remain higher, at 4.1 per cent compared with 3 per cent in urban areas in July 2024.
Madan Sabnavis, Chief Economist at Bank of Baroda, explains, “One of the key components of inflation is food products, which carry significant weight in the overall calculation. When food inflation is high, it can substantially contribute to higher rural inflation compared with urban inflation.”
Ramendra Verma, Partner, Grant Thornton Bharat, says, “Rural areas rely more on traditional fuels like firewood and charcoal, which have seen price increases, whereas urban areas benefit more from LPG, which has seen price decreases. The housing costs are included in the urban CPI, but not in the rural CPI. Urban housing inflation has been relatively low, which helps keep urban inflation lower compared with rural inflation.”
Bihar, Assam and Odisha
In July 2024, seven States experienced high retail inflation, with Bihar, Assam and Odisha leading the list at 5.9 per cent, 5.1 per cent and 4.8 per cent, respectively. Rural inflation played a part in pushing headline inflation higher in these States. Significant portion of the population resides in rural areas in these States — 88.7 per cent in Bihar, 85.9 per cent in Assam and 83.3 per cent in Odisha.
“Food items, particularly vegetables, have seen significant price hikes in these States. These items form a substantial part of the consumption basket,” says Verma.
He explains that these states have varied economic structures and levels of development compared with other States. “This can lead to varying inflation rates as local economic conditions and policies affect price levels,” says Verma.
Across categories
Inflation data across various item categories reveal that Food and Beverages (5.06 per cent) and Pan, Tobacco, and Intoxicants (3.02 per cent) experienced the highest inflation rates in the country. Additionally, food inflation in rural areas (5.5 per cent) is higher than in urban areas (4.5 per cent). It is also linked as the food and beverage sector accounts for 54.18 per cent of the Consumer Price Index basket in rural areas, whereas in urban areas, it holds a weightage of 36.29 per cent.
Sabnavis adds, “Controlling inflation is unfeasible because the final price consumers pay is influenced by multiple layers of costs throughout the supply chain. Prices rise due to factors like the cost of production at the farm level and the expenses incurred at various stages of distribution, including primary, secondary, and tertiary markets, as well as the main market in the city. Each of these stages adds costs, including logistics and transportation, which cumulatively drive up prices.”
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Published on August 21, 2024
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