Inflation is higher in Rural areas or Urban areas? Why?

-

Inflation is higher in Rural areas or Urban areas? Why?

How Inflation is calculated? And why it differs within the nation despite using the same currency?


Here we are not going to go through the formulas for calculating inflation, which can be found on Google easily.


In simple terms, Inflation is a comparison between the spending made by a regular household in the current period and the previous period. (Year/quarter/month etc)

If in 2021 a household’s monthly spending is Rs. 100 and in 2022 is Rs. 107 (Buying the same goods and services), Inflation is 7%.


Before moving further, firstly we should understand what is CPI a.k.a. Consumer Price Index - It is a diverse selection of goods and services indicative of the spending of a regular household.

(and CPI is compared to calculate inflation.)


Is the spending pattern of households same in all parts of the country?

Definitely no!


In rural areas, more proportion of the income is spent on necessities as compared to urban areas.

In India, Inflation is calculated - State wise and Region Wise (Rural and Urban).

In Rural CPI, Foods and Beverages are weighed at 54.18% whereas in Urban it is 36.29%. Hence different inflation rates.


Now let's move to where inflation is likely to be more, urban areas or rural areas?


There’s no direct answer to this, however as per RBI reports higher inflation rates in rural areas were a norm till 2018, but during 2018-2020 urban inflation took over with a large divergence. (image below)




As per the RBI paper - “Divergences in rural, urban inflation do not persist for long”.

They move toward convergence/uniformity over time.

This divergence and convergence is due to various reasons like:-


Fiscal policies and Monetary policies.

Consumer Price Index Baskets.

Income spent on necessities.

 

Comments

Post a Comment

Popular posts from this blog

IPO Frenzy: A Hidden Leading Indicator?

-
Image
 An IPO boom is seen as market's positive sentiment. News outlets and influencers flood us with stories of high listing gains from IPOs. We often confuse it with the whole market going green forward. But data tells a different story: 1. IPOs squeeze liquidity from market - Listings, either primary or secondary, put money in the hands of company for expansion or the shareholders; leading to a cash outflow from the secondary market. 2. Correlation - I analyzed the last 18 years (2007-2024) of Nifty 50 returns against the annual number of IPOs and amount of Capital Raised. The statistical correlation between them: Nifty 50 returns against the annual number of IPOs +0.12 Nifty 50 returns against the Amount of Capital Raised +0.09 A correlation of +0.12 and +0.09 indicates a very weak positive relationship. In simple terms, knowing the Nifty's return for a year gives you almost no ability to predict the number of IPOs. But this gets interesting when we try to predict the Nifty's...
Read more

Middle East Crisis - Oil or something else?

-
Image
Next time you hear about conflicts or gas pipe shutdowns in the middle east, remember, it’s not just about your car or electricity bill — it’s about the food on your plate, and millions of Indian farmers. Whenever we talk about tensions in the Middle East, everyone immediately jumps to oil and logistical disturbances. But here's the twist — it's fertilizers that we need to start worrying about. And for India, it's a big deal. Here's how it connects The Middle East isn't just about oil; it’s also a fertilizer powerhouse, especially for nitrogen-based fertilizers like urea (made from natural gas). Now with conflicts disrupting natural gas supply (especially after recent tensions involving Israel, Iran, and Egypt), fertilizer plants in the Middle East have shut down. That’s squeezed the global supply — and prices are already rising. (Refer Image) We are the second-highest fertilizer consumer in the world. And for some more than half of it is imported. For some types —...
Read more

TikTok, Trump, and the World’s Weirdest Love Triangle

-
Image
A national weapon. A national threat. A political strategy. The Tiktok-Trump saga is an epic case of how a naive start-up became the epitome of geo-political tug-of-war between world's 2 biggest powers. That start-up marked a turning point in how we consume content globally. ByteDance (parent of Tiktok) founded in 2012, launched a short video app - "Douyin" for Chinese market in 2016. The app named as TikTok for international market was launched in 2017. In 2018, it was among the most downloaded app. The growth was immense, establishing it among the top social media platforms. Here are some key stats that frame the power of social media in today’s world: - 5.24 billion people (63.9% of the global population) currently use social media worldwide, up more than double from 2.07 billion in 2015 - The average social media user engages with an average of 6.83 various social media platforms - Globally, the average time a person spends on social media a day is 2 hours 21 minutes ...
Read more