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Informist, Friday, Sept. 25, 2026

 

By Shweta

 

NEW DELHI – Rural inflation, based on the Consumer Price Index, has been rising faster than headline inflation for the last seven months, driven by higher food and fuel prices. More importantly, the gap between the two measures has been widening steadily.

 

Rural inflation rose to a series high of 5.23% in August, while urban inflation also rose to a series high of 4.31%. The gap between rural and urban inflation increased to 0.92 percentage points in August, the widest in the new CPI series, from a negative 0.02 percentage points in January. The new CPI series, with 2024 as the base year, has inflation data only from January. India's retail inflation rose to a series high of 4.82% in August.

 

There was a similar gap in core inflation, which excludes food and fuel, between rural and urban areas. Rural core inflation was 4.6% in August, 0.9 percentage points higher than urban core inflation of 3.7%.

 

A disaggregated analysis shows that, of the 12 broad categories, rural inflation was higher than urban inflation in 10. In five of these 10 categories - personal care, social protection and miscellaneous goods and services; clothing and footwear; housing, water, electricity, gas and other fuels; furnishings, household equipment and routine household maintenance; and recreation, sport and culture – rural inflation was more than 0.75 percentage points higher than urban inflation.

 

Economists attributed the faster rise in rural inflation to differences in the composition of the rural and urban baskets, particularly the higher weight of food in rural consumption. "The weight of food is higher (in rural areas) compared to that in urban areas. Right now, we have a spike in food inflation. It will show up more in rural rather than urban because of a change in weighting dynamics," Gaura Sen Gupta, chief economist at IDFC FIRST Bank, said.

 

The weight of food items in the rural CPI basket is about 75% higher than the urban basket. "This can explain the faster pace of increase in rural inflation," an economist with a public sector bank said. Rural food inflation was 6.13% in August, compared with 5.64% in urban areas. "Since rural income is seasonal, the impact of inflation is more intense than urban inflation," the economist said.

 

Housing inflation, or the lack of it, is also contributing to the rural-urban divide. "Besides the higher rate of food inflation, which is rising faster and contributing to higher rural inflation, softer housing inflation is another factor which is widening the gap between the rural and the urban gauge," Abhishek Upadhyay, co-head of economics and fixed income research at ICICI Securities Primary Dealership, said. The CPI weight on rental housing in urban areas is nearly three and a half times that in rural areas. Rental housing inflation has been relatively soft at 2.27% in August, Upadhyay said.

 

A similar trend was seen throughout much of 2023 and 2024, when India's rural inflation remained above urban inflation based on the old series. "This pattern reflected a difference in consumption weights across rural and urban baskets, particularly the larger share of food items in rural consumption, which rendered rural inflation more responsive to movements in food prices," the finance ministry had said in January.

 

Economists see upside risks to rural inflation, with pressure expected to come mainly from food prices amid a weak monsoon, El Nino conditions, and a warmer winter this year. Rainfall during the monsoon season so far was 14?low normal at 723.5 mm as of Thursday.

 

Upadhyay expects food inflation to move closer to 9% by the end of the financial year. With food inflation expected to remain elevated, rural inflation and headline inflation are likely to follow a similar upward trend in the coming months, economists said. "Given that the increase in inflation is likely to be led by food, it (rural inflation) could actually be slightly higher than the headline (inflation) before it starts coming off from the March 2027 quarter," Anubhuti Sahay, head, India Economic Research at Standard Chartered Bank, said.

 

Upadhyay noted that rural demand had been much stronger than urban demand over the last three years, supported by agriculture and construction activity. These activities have been strong enough to feed into construction sector wages and could have some spillover into prices, potentially generating stronger demand-side pressures, he said.

 

This is borne out by automobile sales data. According to the Federation of Automobile Dealers Associations, rural demand has begun to decouple from the monsoon — the farm-income-linked segment softened, while the non-farm rural economy, including livelihood mobility, goods movement, and construction continued to accelerate. In August, the rural passenger vehicle segment rose nearly 25% year on year, compared with nearly 11% growth in the urban passenger vehicle segment, the association said.

 

Gold and fuel products such as firewood have also weighed on rural inflation in the last few months, Sahay said. Festive demand could also keep prices of gold, silver and precious metals higher, which could add to pressure on rural inflation, economists said.

 

Most economists expect the divergence between rural and urban inflation to widen in the near term, primarily because of food inflation. Going ahead, inflation will be influenced by food prices, supply-chain conditions and pass-through of input costs.

 

Even as the resilience of rural demand to the El Nino shock will be watched closely, the sensitivity of growth to monsoon has come down over the last decade, Upadhyay said. "As growth has been fairly broad-based otherwise, that implies a high probability that a multitude of price shocks hitting the economy including the energy shock, higher tariffs, El Nino and high chipflation will feed into price pressures more widely."  End

 

Edited by Avishek Dutta

 

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