Richest 20% facing more inflation than poorest 20%: Crisil

Extrapolating the retail inflation print for October, which inched up on-month to 4.5% from 4.3% in September, but steeply declined from 7.6% on-year, Crisil says the richest 20% of the population, who pay more on non-food or core items, suffered the most from rising prices in the month and the poorest 20%, who pay the most for food items and prices of which have declined, suffered the least.

The Crisil argument is based on the fact that the burden of inflation varies across different income groups, as the share of spending on food, fuel and core categories differs across classes.

According to the National Sample Survey Organisation’s (NSSO) 2011-12 consumer expenditure, the poorest 20% of population spend majority of their income on food, while the richest 20% do so on core items.

Using the NSSO data, the agency has estimated the average expenditure patterns across three income groups— the bottom 20, the middle 60, and the upper 20%, and mapped them with the current inflation trends to find out that the highest inflation was faced by the upper 20% of the income group in urban areas in October when it increased 5% on-year compared to 4.6% in September.

Urban inflation in October was driven by fuel and core inflation, which cumulatively occupy 65% weight in their commodity basket, says the report.

On the other hand, the lowest inflation was faced by the bottom 20% in rural areas, as the October print inched down to 3.9% on-year from 4% in September, primarily driven by lower food inflation.

Thus it can be surmised that the richest 20% faced facing more inflation than the poorest 20% because of rising core inflation and falling food inflation, says the agency.

While the gap widened in rural areas in October relative to September as inflation for the bottom 20% fell more, but the gap got reduced in urban areas as inflation rose for the bottom 20% in addition for the top 20%.

While the top rural 20% faced 4.4% inflaton in October, the top urban 20% did so by 5%, the rural 60% middle income group faced this by 4% and 4.9% for urban top 60% and the bottom rural 20% had suffered it by 3.9% while the same was 4.9% for the urban bottom 20%.

Going forward, Crisil expects retail inflation to average at 5.5% on-year this fiscal, down from 6.2% last fiscal as easing food inflation and high base effect are expected to bring down headline inflation on-year.

As agricultural growth is expected to remain healthy at 3-3.5%, as the normal monsoons, expected record kharif production and adequate reservoir levels bode well for rabi production, keeping food prices under check.

On the other hand, non-food inflation is expected to continue facing pressures from surging global commodity prices. Nevertheless, the impact of the recent excise duty cuts on petroleum products should help soften fuel inflation in November and will also filter through as second-round effects to other parts of CPI over the next few months.

On the other hand elevated input costs will continue to pressure core inflation, as producers will partially pass them on to end-consumers.

Consumer price inflation inched up to 4.5% in October, up from 4.3% in September but steeply down from October 2020 when it was printed at 7.6%.

On the other hand core inflation remained sticky at 5.9% the same as September, pushing urban inflation to 5% in October from 4.6% in September while rural inflation stayed stable at 4.1%, same as September.