Why certain states are feeling the heat of inflation more than others: 10 per cent in Telangana, 5.4 per cent in Kerala
Food prices, the reopening of the economy, and increased demand are driving inflation. Still, other states, like Kerala and Tamil Nadu, probably benefit from public solid distribution systems that help keep prices down.
Measured by the Consumer Price Index (CPI) decreased slightly from 7.04 per cent in May to 7% in June. For the sixth month running, it has remained above the Reserve Bank of India’s upper tolerance ceiling of 6%. Prices for cereals and vegetables remained high while those for edible oil moderated. Tax reductions on gasoline and diesel provide some respite, but service inflation is anticipated to be increased due to the economy’s reopening and the resurgence of demand.
While the national inflation rate moderated from May to June, Telangana had the highest inflation rate among the states in June, clocking in at more than 10%, up from the 9.45% recorded in May.
Inflation is also observed to be elevated in states and Union Territories like Jammu and Kashmir, Ladakh, Arunachal Pradesh, and Sikkim, suggesting potential supply-side limitations. Four states, including Tamil Nadu, Kerala, Himachal Pradesh, and Delhi, had inflation rates of just above 5%. Out of all the large states, Bihar posted the lowest rate (4.68 per cent). The increase in state prices is explained by rising food costs and intensifying core inflationary pressures.
Inflation measured by the WPI drops to 15.18% in June.
Retail inflation went beyond the Reserve Bank’s comfort zone for the sixth consecutive month and was 7.01 per cent in June.
Due to a substantial drop in mineral prices in June, wholesale price fell to a three-month low of 15.18%, although food items remained expensive.
June marked the fifteenth month in a row that the Wholesale Price Index (WPI)-based inflation rate stayed above ten per cent. It reached a record high of 15.88% last month. It was 12.07% as of June 2021.
Food item inflation in June was 14.39% due to a substantial increase in the cost of vegetables, fruits, and potatoes compared to the same month last year.
12.34% was the increase in food item wholesale prices in May.
The price increase for vegetables was 56.75 per cent, compared to 39.38 and 20.33 per cent for fruits and potatoes, respectively.
Minerals’ WPI inflation decreased significantly from 33.94% in May to 8.55% in June.
Inflation in the fuel and electricity basket was 40.38 per cent, while it was 9.19 per cent and 2.74 per cent, respectively, in manufactured goods and oil seeds.
May saw a 12.34% increase in the wholesale price of food items.
Vegetables saw a price increase of 56.75 per cent, compared to 39.38 and 20.33 per cent for fruits and potatoes, respectively.
From 33.94% in May to 8.55% in June, the WPI inflation rate for minerals fell significantly.
Inflation was 40.38 per cent in the gasoline and electricity basket, 9.19 per cent in manufactured goods, and 2.74 per cent in oil seeds, respectively.
According to her, the RBI might increase interest rates by 60 basis points over the following two reviews, raising the repo rate to 5.5% by September 2022 before pausing to determine the pace of economic growth.
The chief cause of the high inflation rate, according to DRE Reddy, CEO and Managing Partner of CRCL LLP, is the cost of food, fuel, and vegetables. As the year goes on, the government’s reduction in excise duty and a strong monsoon season should help to moderate inflation.
He continued that WPI inflation will be determined by geopolitical concerns, crude price changes, and commodities prices.
The RBI bases its monetary policy mostly on retail inflation. The interest-setting monetary policy committee of the RBI will meet again from August 2 through 4.
It exceeded the Reserve Bank’s comfort zone for the sixth consecutive month and reached 7.01 per cent in June.
The RBI predicted that it would be 7.5% in the first quarter (June) and 7.4% in the second quarter (September), before slowing to 6.2% in the third quarter (December) and then to 5.8% in the fourth quarter (March) of the current fiscal year.
The RBI has increased the benchmark interest rate by 90 basis points over the past two months to curb persistently high inflation.
Additionally, the central bank increased its forecast for 2022–2023 by 100 basis points, to 6.7%.
Having an understanding of state CPI
The consumption habits of households are a significant factor in the CPI. The weights of the various items in the commodity baskets used to calculate state-level CPI are based on how much each item households throughout the states spent on their overall consumption.
These shares are based on data from the National Sample Survey Organization’s Consumer Expenditure Survey (CES). Data on household consumption and expenditure patterns in both urban and rural areas of the country will be gathered as part of this study. The weights used to construct the current CPI series are based on the CES conducted in 2011–12 with a reference period of July 2011–June 2012. Both the rural and urban sections of each state take part in this study. Next, based on the percentage of items in each state’s consumption expenditure, the weights for the CPI Urban and CPI Rural are calculated.
For instance, in rural Assam, the share of “food and drinks” is 62.79, compared to 44.07 in rural Kerala. For each state, the weights differ between the rural and urban areas.
State-specific causes of inflation
The June data reveal significant differences across states and between the rural and urban populations. For example, in Assam, rural inflation was more than 2% higher than urban inflation, whereas, in Bihar, urban it was more than 2% higher than rural.
The category that experienced the most price increase in Telangana (the state with the highest inflation rate in June) was “fuel and light.” Electricity, LPG, kerosene, coal, charcoal, etc., are all included in this component. Telangana’s overall “fuel and light” inflation rate was 21%. The number of regions in this category increased in rural and urban areas. However, it only accounts for 6.1% of Telangana’s entire CPI.
The “food and drinks” sector is the leading cause of inflation in Telangana. Inflation related to food increased by 11.6% in June. The price increase in the rural sector was more noticeable. For the rural areas, “food and drinks” account for more than 52% of the total CPI basket. As a result, increased food costs in rural areas will increase state-wide inflation.
Kerala paints a different picture. In June, the “food and beverages” category had inflation of 3.8%. Since November 2020, Kerala’s food inflation rate has stayed below 5%.
Kerala’s public solid distribution system has contributed to the state’s significantly lower food inflation rate (PDS). As a result, the cost of necessities has remained under control.
Even though ‘food and beverages make up more than 52% of Tamil Nadu’s rural CPI, the state has also been able to control prices. The fact that the state offers a variety of goods through the PDS is one of the most plausible causes.
The “miscellaneous” category has been primarily responsible for Kerala’s inflation. Since the second part of 2021, inflation in this area has steadily risen. Health, communication and transportation, personal care, and other services fall under this category. With the decrease in Covid cases, the price increase in this category suggests a resurgence of demand-side pressures.
While food prices in Haryana moderated in June, the cost of apparel and shoes has sharply increased. Both rural and urban populations are rising. The miscellaneous category is another element that has experienced a high increase.
Pressures for core inflation to pick up again
Due to the economy’s opening up and the recovery of pent-up demand, prices for “clothing and footwear” have increased in most states over the past several months. This has contributed to increased core inflation and a few ‘other’ personal care goods and services.
Future challenges may include reopening the service sector, the transmission of input costs, and the comeback of pent-up demand, even though decreased food and commodity prices could lower inflation in states. In its monetary policy review due next month, the Reserve Bank of India is anticipated to keep tightening the money supply and boost the policy repo rate.
Despite a slight average decline, inflation is rising in 22 states and UTs.
Telangana records a rate of 10.05 per cent, primarily due to rural areas.
Even though the overall rate of price increases accelerated in the majority of states and union territories (UTs), the headline retail price inflation rate in June decreased marginally from the previous month to 7.01 percent.
Up to 22 of the 38 states and UTs had an increase in the consumer price index (CPI)-based inflation rate between June and May. Additionally, one state, Sikkim, experienced an inflation rate of 8.28 percent in June that was identical to that of May.
This shows that less than 40% of the states and UTs saw their rate decrease from May to June.
The average across the country in May was 7.04 percent.
As many as 13 states saw inflation in June that was higher than the 7.01 percent national average; Telangana was the only state to experience a double-digit increase with an increase of 10.5%.
For the third consecutive month, Telangana saw double-digit inflation, with rural areas primarily experiencing rates exceeding 10%.
Telangana was not the only state with double-digit inflation in June; the rate in rural Puducherry increased from 7.32 percent in May to 10.09 percent.
Although no other state reported a double-digit inflation rate in rural regions in June, Madhya Pradesh and Haryana experienced price increases of over 10% in April, at 10.12% and 10.25%, respectively. Nevertheless, those areas fell to 8.07% and 8.56%, respectively, in June.
Additionally, other states that had higher rates of inflation in June, such Manipur and Meghalaya, saw slight price increases. Inflation was only felt by 0.6 percent of Meghalayans in June, compared to 0.27 percent in May, whereas it was felt by 3.8 percent of Manipur inhabitants during this time.
In June, Lakshadweep was the only region in which the urban inflation rate exceeded 10%. There, the rate increased to 10.84% from just 6.04% the previous month. State to state differences exist in the consumption mix. Devendra Pant, the chief economist of India Ratings, predicts that inflation will be greater in situations where the spending pattern is more heavily weighted toward particular goods—goods that saw an increase in June compared to May.
The cost of fuel and light, household goods and services, amusement and entertainment, as well as personal care and accessories, were some of the areas that saw an increase in inflation in June.