INFLATION IN DIFFERENT STATES

Context

Key points

• Retail inflation which shot up to an eight-year high of 7.79 per cent in April, cooled slightly to 6.7 per cent by July.
• In several states and Union Territories (UTs), including Assam, Andhra Pradesh, Gujarat, Haryana and Telangana, Consumers continued to face over 7 per cent inflation in July.
• While 11 states, including West Bengal, Uttar Pradesh and Bihar saw an accelerated price rise in the month.

Consumer Price Index (CPI)

• Inflation measured by the Consumer Price Index (CPI) crossed the central Bank's upper tolerance limit of 6 per cent in January and has averaged 6.8 per cent till July 2022.
• But an analysis of State-wise inflation prints for this period reveals that 14 states and three UTs, including Jammu and Kashmir, have faced higher than the national inflation, most averaging over 7 per cent in the same period.

Highest inflation states

Lowest inflation states

National inflation rate

• Andhra Pradesh and Jharkhand's inflation averaged just 0.1 per cent over the national rate at 6. 9 per cent.
• But the former averaged 8.18 per cent in the April to June quarter before easing slightly to 7.38 per cent in July, while the same numbers were 7.36 per cent and 5. 65 per cent for the latter, respectively.

Variations in Price rise 

• Food price inflation dropped to a five-month low of 6.8 per cent in July is a key differentiating factor for State's inflation experience.
• States that are not major crop producers have higher food inflation as transport costs are added on and those with predominantly rural areas also clock more inflation as the CPI for rural areas assigns a higher weightage to food.
• Indeed, rural inflation has averaged more than urban inflation at 7.07 per cent from January to July and 7.6 per cent in the four months since it peaked at 8.38 per cent in April.
• For urban consumers, inflation only crossed 6 per cent in March 2022 averaged 6.47 per cent through 2022 and fell 0.6 percentage points by July from its 2022 high of 7.09 per cent in April.

Consumption patterns and divergences 

• Consumption patterns and divergences in different item price trends also influence variations among states.
• Tomato inflation dropped to 44 per cent from 158.4 per cent in June, while meat and fish price rise cooled to a 46-month low of 3 per cent in July.
• As EY India noted in a report this week, inflation in petrol used for conveyance eased to a 32-month low of 0.3 per cent diesel turned negative for the first time since November 2019 at (-) 2.4 per cent.
• LPG inflation hit a six-month high of 23 per cent and kerosene touched an unprecedented 108.8 per cent in July.
• That some Stated lowering their fuel taxes made a difference.

Private consumption

• The share of Private consumption has spiked to nearly 60 per cent of GDP in Q1 2022-23, this persistently high inflation has dented spending propensity, particularly in rural India which is facing more price pressures.

• With the monsoon progress still uneven, there is anxiety about rural demand even as inflationary pressures continue to cramp household budgets.

Conclusion 

• Identifying what is driving inflation higher (or lower) in some States vis-a-vis others could help policymakers address that pressure points more specifically to provide lasting relief to consumers, apart from other broad-brush ploys such as interest rate hikes and trade curbs to cool prices of individual items.
• The Centre and States can coordinate to pinpoint and address the price triggers that may not be driven by global headwinds but by local factors.