Rural inflation surges ahead of urban price rise

index.jpgSource: The Hindu Business Line, Oct 16, 2016

New Delhi: Retail inflation may have eased to a 13-month low of 4.31 per cent in September, but surging prices continue to pinch the pockets of consumers in rural areas due to regional variations and transportation challenges.

Though the consumer price index (CPI)-based inflation in rural areas fell to 4.96 per cent in September, against 5.87 per cent in August, it was still much higher as compared to retail inflation in urban areas that measured at 3.64 per cent in September.The phenomenon is not new. Data collated by the BusinessLine show that CPI inflation in rural areas has been higher than that in urban areas since December 2014, when retail inflation was 4.16 per cent in rural areas, against 4.5 per cent in their urban counterparts.

In September 2016, in 11 of the 22 States and Union Territories, which are surveyed for the index, retail inflation in rural areas was higher than that in urban areas and was much above the Reserve Bank of India’s comfort level of 5 per cent. Retail inflation was the highest in rural Gujarat at 7.83 per cent in the month under review, followed by Andhra Pradesh, where it came in at 6.36 per cent.

However, in some States, such as Delhi, Assam and Chhattisgarh, retail inflation in rural areas was lower than in their urban counterparts in September.

Analysts and experts note that the issue is worrisome as it directly impacts the general CPI inflation, adding that it has many causes, such as regional factors as well as transportation and marketing challenges in far-flung and rural areas.“The area of concern with respect to retail inflation is a sustained higher inflation in rural areas than urban areas,” India Ratings said in a recent research note.

However, Pronab Sen, Country Director, International Growth Centre and former Chairman, National Statistical Commission, said that a part of the spike in rural inflation was due to the changed consumption basket of the CPI wherein more items have been included that may not be produced locally. This, he said, eventually highlights the strained transportation and distribution networks.

“The average consumer is using more and more products that are not produced locally.

A lot of items that are measured in the CPI are produced either in urban areas or in other rural areas, which are then transported across the county. So, the impact of trading and marketing has increased,” he said, adding that a lot of the problem was due to higher logistics costs.

Under the new CPI series with a base year of 2012, as many as 11 new items have been included in the rural consumption basket including prawns, kurta pyjamas sets, school and college uniforms, piped natural gas, laptops and inverters.

The items were included based on the NSS Consumer Expenditure Survey, and weights for consumption baskets were also revised.

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