Rural inflation running higher than urban: HSBC

Notwithstanding the fact that overall inflation has fallen strikingly in last few months, its benefits have not been equally distributed with the rate of price rise running higher in rural areas than in urban centres because of structural bottlenecks, says a report.

According to global financial services firm HSBC, Rural inflation has not fallen as much as urban inflation and the 'excess inflation' that the rural India is facing is apparent across major sub-categories like fuel, core and food.

"Structural bottlenecks are preventing rural Indians from benefiting fully from global disinflation," HSBC said in a research note, adding that this is seen in greater use of non -oil based fuels, where prices remains higher in rural homes.

India's underlying inflation momentum at 5.5 per cent year-on-year is running below RBI's January inflation target of 6 per cent, it said.

Details however showed it to be higher at 6.5 per cent for rural India, while for urban India it stood at 4.5 per cent, it added.

The report further noted that benefits of cheaper imports are not reaching rural areas as efficiently and a steeper decline in the potential growth of rural India is likely driving its excess core inflation.

According to the report, excess inflation in rural India arises from each of the main constituents - food, fuel, transportation and core inflation.

The dramatic drop in oil prices have not passed on to the rural areas.

As rural India's fuel mix is more geared towards domestically produced firewood, chips and biogas inputs, which are not a part of the global deflation cycle.

On the other hand, fuel products more widely used in urban India, like LPG and diesel, have benefited from lower global prices.

HSBC said rural Indians do not seem to have benefited as much from food imports as their urban counterparts. Insufficient distribution channels may be coming in the way of reaching imported vegetables and oilseeds to rural areas, making these products more inflationary than they are at urban centres.