Rural Folks Facing Higher Inflation Than Urbanites

Existential issues apart, rural folks have been facing higher inflation than urbanites, reveals CRISIL Research. This is one inflation comparison that’s been quite under the radar.

Data for the last five years show folks in rural areas – or 69% of India’s population — have got the rough end of the stick on inflation compared with their urban counterparts.

Specifically, in the 24 months to June 2016, while urban inflation fell from 9% to 5.3% (compared with the two years prior), rural inflation declined from 10.1% to 6.2%.

The gap has remained ~100 basis points in the recent past, caused by higher core and fuel inflation in the rural

In fiscal 2016, rural core inflation was 6.7% compared with 4.8% in urban. Sub-categories such as health, education, household goods and services and recreation and amusement have all recorded higher inflation in hinterland last fiscal.

And fuel inflation in rural was 6.8%, more than two-and-a-half times the 2.7% in urban. Reason: surging prices of cooking fuel such as dung cake, and firewood and chips.

Rural Inflation 3

Inflation in firewood and chips — used by 84% of the rural population compared with 23% of urban — was 7.4%, while that in dung cake — used by close to 41% of rural households compared with just 7% in urban centers — was 10.8% last fiscal. This has been derived from the National Sample Survey Organisation’s household consumption expenditure data for 2011-12.

No surprise then that rural fuel inflation has felt greater upward pressure compared with urban.

Also, the meltdown in commodity prices — petrol prices fell 7.6% last fiscal, and diesel prices 11.7% — hasn’t benefited rural areas as much as urban.

Reason? 37% of urban households use petrol, and 2% use diesel for their vehicles– compared with less than half that – 17% petrol, and 0.8% diesel — in rural households, according to data for fiscal 2012 (latest available).

Petrol and diesel account for 3.5% of monthly consumption expenditure in urban areas, and less than half that at 1.7% in rural.

In addition, poor storage and transport facilities (poor roads and connectivity) have meant limited pass-through of lower commodity prices to the countryside. This, in turn, feeds into food and non-food inflation. While the government is improving access through the Pradhan Mantri Gram Sadak Yojana, there is still a long way to go.

Lack of recreation options and supporting infrastructure such as constant electricity also stoke inflation in rural areas. And the absence of ample institutional medical services has had a bearing on healthcare costs: overall non-institutional medical inflation rose by 9.7% last fiscal, rubbing salt into festering rural price wounds.

Rural Inflation

Rural Inflation 2

To sustainably lower inflation and bridge the gap between urban and rural prices, the government needs to improve road connectivity and healthcare infrastructure in rural areas, and relentlessly implement the Pradhan Mantri Ujjwala Yojana, which aims to provide cooking gas connectivity to 5 crore below-poverty line beneficiaries over the next three years.

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