Rural India had been facing the brunt of inflation since the beginning of 2022, with rural CPI inflation higher than urban till February 2023. But this trend appears to be reversing with village folks experiencing lower price increases compared to their urban counterparts in March and April this year.
Urban inflation is typically higher than rural inflation as the population is higher in cities and they also have higher purchasing power, leading to higher demand for goods and services. This was the trend for most part of 2021.
But rural inflation moved higher in 2022 as food prices shot up owing to higher demand following the reopening of economy after Covid-19. After March 2022, the Russia-Ukraine war disrupted supply of all commodities leading to large spikes in prices of cereals, oils and other food items.
The gap between the rural and urban CPI inflation widened the most at the beginning of the Russia-Ukraine war. While the urban CPI was 1.91 percentage points higher than the rural CPI in March 2021, the latter overtook urban CPI as of March 2022 — higher by 1.54 percentage points.
As of April 2023, rural inflation stood at 4.68 per cent, lower than in urban areas (4.85 per cent).
Food inflation down
The increase in rural inflation was primarily led by food inflation. According to Madan Sabnavis, Chief Economist, Bank of Baroda, “Food products have a higher weightage in CPI — of 54 per cent for rural as against 36 per cent for urban.” He added that inflation of oils and vegetables are down sharply.
The food and beverage inflation has been ranging between 6.5 per cent and 8.5 per cent during March-October 2022. It peaked during this period and hit a high of 8.4 per cent in September.
In the first two months of 2023, food and beverage inflation was above 6 per cent but it started to cool off in March and reduced to 5.1 per cent. The following month, it reduced further, hitting a low of 4.2 per cent.
The variation in rural and urban inflation is due to the differing weightage given to various categories in the regions. The top weightage in rural CPI is given to cereals and products at 12.35 per cent, followed by milk and products. While in urban CPI, transport and communication gets the most weightage at 9.73 per cent, followed by cereals and products.