Inflation nuances

While national CPI data is based on a wide range of prices, it misses out on nuances based on location as well as occupation


The collapse in global energy prices seems to have benefited urban consumers more than their rural peers. The reason: people living in villages are far more dependent on biomass for their energy. A recent granular analysis of prices by rating agency Crisil shows that prices of firewood and dung cakes have been shooting up. The result: inflation over the past year has been around one percentage point higher in villages compared with cities. Crisil also points out that other factors such as inadequate power supply and lack of good roads and formal medical care facilities has made rural inflation worse.

Policymakers these days focus on the national consumer price index to take decisions. There is nothing wrong with that, given that this national inflation gauge is based on a wide range of prices. However, the overall national index hides nuances based on location as well as occupation. The recent data on urban and rural inflation is a timely reminder of that.