Price anomaly: The curious case of rising food inflation in rural economy

Amid heightened concerns on the consumption dip in the Indian economy, an anomalous behaviour of food prices has come to the fore. The rural food inflation rate has grown at a faster rate than the food inflation rate in the urban areas on a number of occasions over the past year. This is despite the fact that the rural economy is the primary source of production for the food items.

Data from the ministry of statistics points out that the rural economy is bearing the brunt of high rate of inflation in edibles across the board. In the month of November, the prices of cereals, pulses, vegetables, fruits and edible oils have seen higher growth in the rural economy than the urban sector. In what could come as a surprise, the prices of vegetables in the month of November grew 30.2% year-on-year (YoY) in the rural segment, compared with 28.13% urban inflation rate.

Similarly, prices of fruits rose 9.22% YoY in rural areas in November, compared with a 6.08% growth in the urban inflation rate during the same period. The inflation rate in edible oils went through the roof at 14.88% in the hinterlands, compared with 10.27% in their urban counterparts. Pulses and cereals too exhibited a similar trend.

A close analysis of the price data from the Ministry of Statistics reveals that in the months of November, August, July, April and March this year, the growth in rural food inflation rate remained higher than the urban areas. It is important to note that between November last year and February this year, the rural food inflation rate was lower than the urban food inflation rate.

The question being, why are the rural households —which are the production source for food items – are paying more for the commodities? Economists say a clear explanation of this trend is yet to be established, though one probable reason being higher weight of 54.18% for food and beverages in rural areas, compared with 36.29 in the urban areas, which jacks up the weighted inflation in the rural economy at a time when food inflation is generally higher.

An economist points out, requesting anonymity that the inflation rate (rate of change of prices) may be high in the rural economy, but the actual prices of the of goods and services in the hinterland are way too low. “But even with low prices, if the rate of price increase is high, it will have consequences on consumption and lead to higher inflationary expectation,” the economist pointed out.

A former finance ministry official points out that the rise in fuel prices and prices of traditional fuels like wood and coal, too, are stoking inflation in the rural economy.

Good news, though, is that the food inflation is likely to soften in Q4 with seasonal easing of vegetables prices and kharif harvest arrivals, according to the Reserve Bank of India. Good soil moisture conditions, along with comfortable reservoir levels auguring well for Rabi production. Adverse weather events and rise in international agricultural commodity prices, however, pose upside risks to food inflation. Even though energy prices have softened in the recent past, its sustenance needs to be monitored,” said the minutes of the RBI monetary policy committee meeting.

“CPI inflation for 2024-25 is projected at 4.8% with Q3 at 5.7%; and Q4 at 4.5%. CPI inflation for Q1 2025-26 is projected at 4.6%, and Q2 at 4.0%. The risks are evenly balanced,” RBI said.