Economy

How rural inflation is playing out

Keerthi Sanagasetti | Updated on September 17, 2019 Published on September 17, 2019

Low food inflation and high services inflation in rural India is doing more bad than good for the rural population

BL Research Bureau

CPI Inflation in August came in at benign 3.21 per cent, although it recorded a marginal uptick from July. A deeper look at the numbers brings out the widening disparity between the urban and rural inflation.

Rural inflation in August was almost half of urban retail inflation. With the headline CPI inflation being well below RBI’s targeted 4 per cent and rural inflation too trending lower than urban, further rate cuts to boost demand and growth may be needed.

Rural retail inflation in August was at 2.18 per cent — almost half of the 4.49 per cent in urban areas. A part of the gap can be attributed to the difference in weights of the items considered in the respective consumer expenditure baskets. For instance, prices of housing are not considered while computing retail inflation for rural labourers.

The gap between urban and rural inflation has been widening in the last year, implying that not all can be attributed to the difference in weights alone.

 

Food and beverages (F&B), which constitute 54.18 per cent of the rural basket, inched up by a meagre 0.91 per cent, while its urban counterpart saw a 6.42 per cent spike in August. F&B constitutes 36.29 per cent of the urban basket.

Higher disparity in prices was noted in perishable items like fruits, vegetables and eggs. Prices of these items deflated by 5.7, 0.13 and 1.44 per cent respectively in the rural segment, while the urban numbers indicated a rise of 5.19, 20.34 and 3.07 per cent respectively.

The lacklustre rural numbers, economists say, can be attributed to two things: One, the lack of proper infrastructure for storage and transport to urban areas, leaving rural India with a supply glut. Two, the recent floods in many states could have also made matters worse in terms of moving goods to urban areas.

Lower incomes, costlier services

A fall in demand for items like clothing and footwear among rural customers indicate that the constant deflation in agricultural products in rural areas over the last year could have impacted the rural incomes.

Prices of clothing and bedding (C&B) in rural segment deflated by 0.2 per cent in August. Urban C&B prices increased by 3.6 per cent. Even in the higher prices of F&B in urban areas — farmers could end up with a relatively smaller share, given the existence of many intermediaries.

Even as incomes took a hit, services became costlier. Prices of important services like healthcare and education has inched up sharper for rural India. For instance, the rural index for healthcare costs spiked from 139.4 in August 2018 to 152.7 in August 2019, recording a 9.54 per cent inflation. While the same in the urban basket inched up only by 4.9 per cent over August 2018.

Lower rural food inflation is doing more bad than good for the rural population.

Where on one hand the inflation is slower in agricultural items — on which majority of the rural population relies for their income — higher inflation in basic healthcare and education is only bringing their affordability under question.

Published on September 17, 2019
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