What are local factors? How has this reduced spending especially in rural India, which is facing greater price pressure?
What are local factors? How has this reduced spending especially in rural India, which is facing greater price pressure?
the story So Far: India’s economy grew 13.5% in the first quarter of the year, at a slower pace than expected. Private consumption picked up, but inflation slowed. Retail inflation, which hit an eight-year high of 7.79% in April, cooled slightly to 6.7% by July. However, consumers in several states and union territories (UTs), including Assam, Andhra Pradesh, Gujarat, Haryana and Telangana, faced inflation in excess of 7% in July, while 11 states including West Bengal, Uttar Pradesh and Bihar saw a sharp rise. Viewed. Monthly price increase.
Which states are seeing the most inflation and where are consumers better off?
Inflation as measured by the Consumer Price Index (CPI) crossed the central bank’s upper tolerance limit of 6% in January and averaged 6.8% by July 2022. But an analysis of state-wise inflation prints for the period shows that 14 states as well as three union territories including Jammu and Kashmir have faced higher than national inflation, most of them having averaged 7 per cent in the same period. encountered more than %. While consumers in Telangana (8.32%), West Bengal (8.06%) and Sikkim are the worst hit with inflation exceeding 8%, other major states are not far behind, some of which have registered price increases in July. The average retail inflation in Maharashtra and Haryana so far has been 7.7%, followed by Madhya Pradesh (7.52%), Assam (7.37%), Uttar Pradesh (7.27%), Gujarat and Jammu and Kashmir with an average of 7.2% and Rajasthan. Is. (7.1%).
In contrast, a dozen states, including Kerala (4.8%), Tamil Nadu (5.01%), Punjab (5.35%), Delhi (5.56%) and Karnataka (5.84%), reported less than 6% growth in retail prices by 2022. is of. , In fact, the average inflation in Manipur, Goa and Meghalaya was 1.07%, 3.66% and 3.84%, respectively, below 4%. Andhra Pradesh and Jharkhand average only 0.1% of inflation compared to the national rate of 6.9%, but the April-June quarter average was 8.18%, falling slightly to 7.38% in July, compared to the same numbers of 7.36% and 5.65%. Was. the latter, respectively.
What explains the variation in price increases between states?
Bank of Baroda chief economist Madan Sabnavis explained that food price inflation slipped to a five-month low of 6.8% in July, a key differentiating factor for states’ inflation experience. He noted that states that are not major crop producers tend to have higher food inflation because transportation costs are added, and also higher inflation primarily in rural areas because the CPI for rural areas gives more importance to food, They told. In fact, rural inflation averaged 7.07% from January to July and 7.6% in the four months since it peaked at 8.38% in April. For urban consumers, inflation crossed just 6% in March 2022, averaged 6.47% by 2022 and fell 0.6 percentage points by July, from a 2022 high of 7.09% in April.
Consumption patterns and deviations in price trends of different items also influence variation between states. Tomato inflation declined to 44% from 158.4% in June, while meat and fish prices hit a 46-month low of 3% in July. As EY India noted in a report this week, inflation in petrol used for transport eased to a 32-month low of 0.3%, diesel turned negative for the first time since November 2019 (-)2.4 %, but LPG inflation climbed to six – the highest level of 23% in July and kerosene touched an unprecedented 108.8%. With some states lowering their fuel taxes, it made a difference.
How does it matter?
While the share of private consumption has increased to around 60% of GDP in the first quarter of 2022-23, this persistent high inflation has affected spending patterns, especially in rural India which is facing greater price pressures. doing.
“Private consumption is improving, with urban demand being supported by contact-intensive services. Had it not been for high inflation and a reduction in rural demand due to negative real rural wage growth, private consumption would have grown faster,” said Dharmakirti Joshi, chief economist at Crisil.
Monsoon progress still uneven, there are concerns about rural demand, even as inflationary pressures will continue to weigh down the household budget. Identifying what is driving inflation high (or low) in some states can help policymakers address those pressure points, particularly to provide lasting relief to consumers, with other broad-brush moves such as That curb interest rate hikes and cooling of prices of individual commodities apart from trade. Center and states can coordinate to pinpoint and address price triggers that may be driven not by global headwinds but by local factors.