Some states saw higher inflation than national average, shows data

Many individual states experienced higher inflation than the all-India figures during the financial year 2023-24 (FY24).

Retail inflation figures in Telangana, Haryana, Rajasthan and Dadra and Nagar Haveli have been higher than national numbers every month of this financial year, shows a Business Standard analysis of state-wise figures, after the March inflation data was released on Friday.

Experts noted that persistent high food inflation along with differences in the weights of rural and urban indices plays into the regional variation in inflation rates.

“As food inflation has been high, inflation in states which are producers tends to be slightly lower than those which get these products from other states,” said Madan Sabnavis, chief economist at Bank of Baroda.

“Hence, when rice production or tur output is lower in the producing states, the inflation rates would be higher for those importing from these states as the logistics costs as well as margins increase across these regions,” he added.

Radhika Pandey, associate professor at National Institute of Public Finance and Policy, said the principal reason for states having persistently higher inflation is the steady elevation in food prices.

“In Telangana, inflation has been quite volatile, driven by price spikes in vegetables, cereals and pulses.

"In Rajasthan, the key driver has been high prices of cereals and spices.

"Rajasthan has one of the highest value-added tax (VAT) on petrol and diesel.

"Higher petrol and diesel prices tend to spill over to other commodities.

"In Haryana, inflation is high on account of high food and clothing prices,” she said.

Manipur has experienced higher inflation rates every month since violence broke out in the state in May last year.

Inflation in Uttar Pradesh has been high for 11 months in FY24.

In Gujarat, Odisha, Karnataka, Tripura, Bihar, Punjab and Andhra Pradesh, the rates have been higher for 7-10 months in FY24.

Meanwhile, seven states and union territories, including Delhi, Goa, Sikkim, Nagaland, Chandigarh, West Bengal, and Jammu and Kashmir had lower inflation rates throughout last financial year.

In Madhya Pradesh and Chhattisgarh, the rates exceeded the national average for the first time in March this financial year.

“Chhattisgarh and West Bengal are large producers of rice and witnessed lower price increases on cereal inflation,” said Sabnavis.

He added that rural-intensive states have higher inflation as food prices are higher.

“In rural Delhi, the weight of food is almost 10 percentage points lower than the all-India average for rural regions.

"This leads to lower overall inflation, even though some of the components of food show elevated inflation,” said Pandey.

She added that rural inflation has outpaced urban inflation in Haryana, Mizoram and Manipur while urban inflation was higher in Punjab.

Prediction of a normal monsoon, a 15 per cent fall in rice and a 1 per cent rise in wheat output will affect inflation this year.

Pandey said that variation in state inflation rates this year will depend on the spatial distribution of monsoon and a possible upsurge in crude oil prices.

“Rice and wheat have more controlled prices than pulses and vegetables, which can skew the picture,” said Sabnavis.

The Reserve Bank of India (RBI) expects retail inflation to be around 4.5 per cent in FY25.

Moreover, with a general election looming in the coming months, Sabnavis said there may be an “upward pressure due to spending.

"However, it will be more or less even across states. Core inflation is likely to be affected more.”

“Even during state elections last year, the governments announced measures in the form of free food packets, free electricity, and subsidised gas cylinders to ease the pain of inflation.

"States are likely to follow the same playbook to lure voters,” said Pandey.