The Hindu Business Line : Inflation haunts consumers more in rural areas

New Delhi, July 2 Inflation is pinching consumers in ‘Bharat’ much more than in ‘India’. Official data on inflation based on consumer price indices (CPI) show that the year-on-year price increases for agricultural labourers (AL) have consistently exceeded those for both industrial workers (IW) and urban non-manual employees (UNME).

The annual CPI-AL inflation rates for April and May, at 8.88 per cent and 9.11 per cent, respectively, were way above the corresponding CPI-IW levels of 7.81 per cent and 7.75 per cent. The gap was even larger – almost 200 basis points – vis-À-vis the CPI-UNME. In February 2007, when the CPI-AL inflation peaked at 9.8 per cent, the year-on-year rise amounted to 7.56 per cent for CPI-IW and 7.81 per cent for the CPI-UNME.

Part of this apparent difference between rural and urban inflation levels has to do with the higher weightage assigned to food items in the CPI-AL (69.2 per cent), against the CPI-IW (57 per cent) and CPI-UNME (45.7 per cent). Till recently, the price increases in cereals, pulses and other food articles tended to be higher than for other commodities. This, then, got disproportionately reflected in the CPI-AL more than the CPI-IW and CPI-UNME.

But the situation may well change in the coming days. With the Food Corporation of India’s (FCI) godowns adequately stocked with wheat and rice – unlike what it was only a few months ago – and all indications of normal monsoon and a bumper kharif harvest, there is every possibility of a relative softening of food prices taking place.

That could, in turn, translate into lower CPI-AL inflation levels in the months ahead, even while not impacting the other two indices as much. Subdued food prices would have even less of a salutary impact on the wholesale price index (WPI)-based headline inflation, which is now being driven more by fuel, steel and other manufactured products.

An indication of this is the fact that the average WPI-based inflation in May, at 8.17 per cent, was more than the corresponding CPI-IW rate of 7.75 per cent. With the headline rate breaching double-digits in June, there is likelihood of it surpassing even the CPI-AL inflation for the month. Contrast this to February 2006, when the WPI inflation, at 6.34 per cent, stood nearly 350 basis points below the corresponding CPI-AL rate.

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