Cooling down of food prices keeps rural inflation in check, shows data

Retail inflation in rural areas in May stood at 2.59 per cent, while that in urban areas stood at 3.07 per cent

Beginning March 2025, rural price rise has been lower than urban for the third month (up to May) in a row, latest data released by the National Statistics Office (NSO) showed.

 

Retail inflation in rural areas in May stood at 2.59 per cent, while in urban areas it was 3.07 per cent.

 

Earlier, starting July 2023, rural inflation led urban for 20 months straight, before falling below urban inflation for the first time in March this year.

 

Economists attribute the fall in rural inflation to the falling food prices which form the bulk of the weight in the rural index and a mild rise in core inflation, which has a higher weight in urban index. 

 

Food items have a weight of 54 per cent in the rural index, while they only constitute 36 per cent in the urban index.

 

While overall food inflation fell to a 43-month low of 0.99 per cent in May from 1.78 per cent in April, food inflation in rural areas stood at 0.95 per cent.

 

Among food items, cereals have the highest weight (12.35 per cent) in the rural index, followed by milk products (7.72 per cent), vegetables (7.46 per cent) and prepared meals (5.46 per cent).

 

Cereals recorded a price rise of 4.82 per cent in May, while vegetable prices dropped by 14 per cent.

 

Meanwhile, milk products saw prices accelerate by only 2.82 per cent and prepared meals by only 3.76 per cent in May.

 

Prices of pulses, which have a weight of 2.95 per cent in the rural index, declined 8.15 per cent. 

 

 

Gaura Sengupta, chief economist, IDFC Bank, said moderation in food prices across the board has resulted in rural inflation falling below urban inflation after such a long time.

 

“Moreover, the recent uptick in core inflation which has a higher weight in urban index has kept the inflation in urban areas a bit high. Also, components like rental housing don't exist in the rural index, keeping rural inflation low,” she added.     

 

Among 22 major states and Union Territories (UTs) having a population of more than 5 million, for which data is available, rural areas in nine states/UTs still have higher inflation compared to their urban areas.

 

These are Kerala (6.88 per cent), Punjab (5.27 per cent), Jammu & Kashmir (4.82 per cent) and Haryana (3.68 per cent) among others.  

 

Meanwhile, Paras Jasrai, associate director, India Ratings, said inflation in May 2025 is being compared to a period of relatively high prices in May 2024. This has amplified the perceived decline this year, especially in rural food prices.

 

This statistical effect makes the drop in rural inflation more prominent.

 

“Favourably, the decline in retail inflation continues to be faster in rural areas than urban. This would further amplify the pickup in rural demand that is showing signs of recovery with a sustained positive real rural wage growth,” Jasrai added.