ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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What Is Driving Rural Inflation at a Higher Rate?

Consumer price inflation in rural areas has been persisting at a higher rate than that in urban areas and the gap between the two has stood at 1.5 percentage points in May 2016. Inflation of both series slowed considerably during the last two years or so, the moderation in rural areas has been slower than in urban areas. This was partly due to compositional differences accompanied by divergent price movements and partly due to higher marketing costs and trade margins resulting from the prevailing rural–urban divide in terms of infrastructure bottlenecks, inadequate logistics support, etc. 

The author wishes to thank S L Shetty and K Kanagasabapathy for insightful discussions and J Dennis Rajakumar for his comments. 

Based on the Consumer Price Index (CPI)-rural, India’s inflation in rural areas has been rising persistently at a higher rate than in urban areas since January 2015. Consumer inflation in rural areas stood significantly higher at 5.9% compared to 4.2% in urban areas for August 2016.

The gap between the two inflation series has increased steadily and significantly from about 0.4 percentage points in January 2015 to about 1.7 percentage points in August 2016 as the price increase in rural areas remained high, while that of urban areas slowed considerably. In this context, an attempt is made to trace the sources of higher inflation in rural areas during in recent times.

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