Data shows widening gap between urban and rural inflation

Latest retail inflation data for March highlights a widening gap between urban and rural inflation as urban households felt the pressure of soaring prices of commodities such as meat, fish, edible oils and eggs. Urban inflation increased by 6.5% in March while rural was 4.6%.

Since January 2020 to December, rural and urban inflation were almost at similar levels and in some months, rural inflation was a step ahead of urban. Madan Sabnavis, Chief Economist at Care Ratings, told ToI that food inflation, for example, tends to be lower in rural areas, especially for products which are witnessing increasing inflation. “Pulses, for example, have lower inflation as the levels of intermediation are lower in rural than urban areas. These goods travel probably just one level, while this increases for urban areas while profit margins and costs get added,” Sabnavis explained.

He said fuel and light inflation remains lower in rural areas as there is lower consumption of products such as diesel and petrol, and there is more use of firewood, where prices do not change significantly. “For miscellaneous products, for example, recreation inflation is higher than urban areas because the facilities which can be a mall theatre, or a gym have high costs which are loaded to consumers,” Sabnavis said. “In rural areas, there are simpler models of recreation where cost is lower as are local taxes, rents etc. Health inflation is lower as less recourse is taken to private facilities and people rely on free public services.” Pronab Sen, former chief statistician said the widening gap can be explained by the composition of the basket of items. “For the rural basket, food has a higher weightage, while for urban areas non-food items dominate.”

Aditi Nayar, Chief Economist at ICRA Ltd, said core inflation, as computed by ICRA Ltd, rose to an unnerving 6% in March. She pointed out that despite a month-on-month decline in food prices, driven by vegetables, eggs, spices, cereals and sugar, the inflation for food and beverages hardened to 5.2% in March 2021 on account of the base effect.

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“After the uncomfortable spike seen in March 2021, we expect a temporary drop in the April 2021 CPI print to around 4.0% led by the base-effect related to the lockdown, as well as the decline in prices of vegetables and modest dip in retail fuel prices, before an upturn resumes over the remainder of this quarter,” Nayar said.