Table of Contents
The News
Inflation – Bad News
- The retail inflation rate surged to 95% in march 2022. which is highest level in nearly one and a half years.
- It is believed that with incremental fuel price hikes only kicking in during the latter half of March, the full impact of higher global oil prices being passed on to consumers will only begin reflecting in April.
- Economists expect inflation to go past 7% and hover around that level till as far as September 2022.
Inflation – Bad News
- Across large parts of the country, the experienced price rise has already crossed 7.5% and even 8%.
- Official data pegs rural inflation in March at 7.66%, with several States reporting even higher inflation, including West Bengal (8.85%), Uttar Pradesh and Assam (8.19%) as well as Madhya Pradesh (7.89%).
The Observation
The Observation
- Urban inflation usually trends higher than rural inflation. In 2021, Urban inflation was higher than rural inflation by an average of about 0.8 percentage points. (Only exceptions being May 2021 & August 2021)
- March 2022 marked the third consecutive month that the pace of price rise in the hinterland outstripped urban India, and the gap has been widening rapidly.
- January 2022 – RI: 6.12 UI: 5.91
- February 2022 – RI:6.38 UI:5.75
- March 2022 – RI:7.66 UI:6.12
But Why?
But Why?
- Food inflation was the key driver for the headline inflation rate jump in March, with the overall consumer food price index racing to 7.68% from 5.85% in February.
- Higher inflation in food along with inflation in fuel and light and clothing, were the key factors driving up rural prices. Clothing is seeing higher inflation as demand is picking up due to marriage season. Fuel prices are also higher in rural areas due to connectivity issues.
- Interestingly, while vegetable prices declined in the urban areas between February and March 2022, they inched up sharply in rural India month-on-month.
Who is impacted the most?
- According to official surveys, bottom 20% of the population in urban as well as rural India is facing the worst effects. The rural bottom 20% faced the highest inflation at 7.7% in March, while the upper 20% of the income segment in the hinterland experienced 7.6% inflation.
- While food price risks have risen due to the Russia-Ukraine conflict, but higher prices for farm sector inputs could further feed into food inflation.
- With Kharif season coming the cost of production is likely to increase further by around 8-10%.
- A good news is that, a normal monsoon is anticipated this year. The inflation trajectory in months to come would be determined by this along with end of Russia-Ukraine conflict.
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