At 7.56%, rural India records higher inflation than urban areas: Analysing the trend

By: Yash Gupte

Data shows that the rising inflation has hit the rural areas harder as compared to the urban areas in the country as the rural price rise in September was recorded at 7.56% whereas the urban inflation stood at 7.27%.

Several economic indicators have indicated a slowdown in economic activities and a rise in inflation in September bringing a lot of misery for the Indian consumers. One of the prominent economic indicators indicating an increase in inflation rate is the All India Consumer Price Index (CPI).

The overall (rural and urban) inflation rate in September peaked to 7.41% from 7.00% in August indicating that the inflation tends to affect the festive season for Indians as they need to spend more on basic goods and commodities. National Statistical Office, Ministry of Statistics and Programme Implementation (MOSPI) recently released the consumer price index for rural, urban and the over-all inflation for the month of September. Data shows that the rising inflation has hit the rural areas harder as compared to the urban areas in the country as the rural price rise in September was recorded at 7.56% whereas the urban inflation stood at 7.27%.

The overall CPI was recorded at 7.79% in April which was highest from January to September 2022. The initial four months of the current year recorded high inflationary trends as the inflation increased from 6.01% in January to 6.95% in March to 7.79% in April. A downward trend was witnessed after April as the overall CPI for the month of May dropped to 7.04% and further to 6.71% in July 2022 but August was an exception which broke the trend and witnessed an increase in the inflation from 6.71% in July to 7.00% and a further escalation to 7.41% in September.

The central government has mandated the Reserve Bank of India (RBI) to maintain the retail inflation at 4% with a margin of 2% on either side for a five-year period ending March 2026 but the central bank couldn’t keep this in check as the Consumer price index continued to remain above the 6% mark for the ninth consecutive month as the CPI increased to 7.41% in September. The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The central bank's Monetary Policy Committee (MPC) hiked the repo rate to 5.90% last month in order to tackle the rising inflation. The hike in repo rate by the central bank is one of the basic measures to counter inflation.

This was the case with overall inflation in the country. As mentioned above, the inflation has affected the rural consumer more. The chart below compares urban and rural inflation from January to September 2022.

Source: Ministry of Statistics and Programme Implementation

It can be understood from the chart that the rural inflation has remained higher than inflation in urban areas right from the beginning of the year. A sharp difference between inflation n in cities and countryside was recorded in the months of March and April. Rural price rise was recorded at 7.66% in March whereas the urban inflation was much lower at 6.12%. Almost equal rate of inflation was registered in May. But after looking at the data, it needs to be understood that why inflation has affected the rural areas more.

Speaking to The Hindu, Dipti Deshpande, Principal Economist at CRISIL Ltd, said that the higher food prices in rural areas is the reason behind increase in inflation. She further added, "Earlier in the year, the sharp acceleration in food inflation owing to the impact of heat wave earlier in the year on vegetable prices led to much higher food inflation in March-April in rural areas compared to urban areas."

The food products have a higher share in the overall commodities in rural areas. This trend is explained by Madhav Sabnavis, chief economist, Bank of Baroda in an interview with The Hindu. He said that the food products have a weightage of approximately 54% in rural areas and the weightage/ share of other commodities is much lower as compared to urban areas.

Therefore, the rural inflation continues to remain higher as compared to inflation in urban areas. The increase in food prices has caused the inflation to rise in rural areas.