The poor are facing the burden of higher inflation due to the surge in food prices, especially for items such as cereals and vegetables, which are unlikely to cool down soon due to unseasonal rainfall and lower sowing of Kharif crops, according to economists.
Urban India’s poorest households – those in the bottom 20% income group – faced as much as 8.1% inflation in September, while those in the top 20% income segment experienced a much lower inflation of 7.2%, Crisil estimated Ratings in a report on Thursday. Likewise, those in the lowest income group in rural areas faced inflation of 7.8% last month, compared to 7.3% for the top 20% income households.
Food inflation rose to a 22-month high of 8.4% in September, lifting India’s retail inflation to a five-month high of 7.4%. Cereal inflation hit a 108-month high at 11.5%, mainly due to wheat, which has clocked double-digit inflation since June and reached 17.4% in September, and rice – which increased to 9.2% from 6.9% in August. Vegetable inflation accelerated to 18.1% last month from 13.3% in August.
“Essential items, such as food and fuel, occupy a larger share in the consumption basket of lower income classes… Across rural and urban areas, the poor (bottom 20% income class) continued to face effectively higher inflation than their wealthier peers (top 20%, as inflation for food and fuel items remains higher than for core items), Crisil economists noted.
SBI expects high grain and vegetable prices to continue given the unseasonably high rains in grain-producing States and expects the higher food inflation to push the headline inflation average in the October-December quarter to around 7% – compared to 6.5% predicted by the Reserve Bank of India. Goldman Sachs also warned of the risks to food inflation and said that fuel inflation would rise due to the recent rise in natural gas prices.