GS Paper - 3 Economy

The retail inflation data for March showed the gap widening between urban and rural inflation, piling pressure on urban households as prices of commodities such as edible oils, meat, fish and eggs soared. Since last December, the gulf has been widening which economists attribute to several factors, including the composition of the basket in both areas. The retail inflation data showed urban inflation soared 6.5% in March, while rural was at 4.6%.

What

  1. Since January last year up to December, rural and urban inflation were almost at similar levels and in some months rural inflation was a step ahead of urban.
  2. Food inflation, for example, tends to be lower in rural areas, especially for products which are witnessing increasing inflation.
  3. Pulses, for example, have lower inflation as the levels of intermediation are lower in rural than urban areas. These goods travel probably just one level, while this increases for urban areas where profit margins and costs get added.
  4. For miscellaneous products, for example, recreation inflation is higher in urban areas because the facilities which can be a mall theatre or a gym have high costs which are loaded to consumers.
  5. In rural areas, there are simpler modes of recreation where cost is lower as are local taxes, rents etc. Health inflation is lower as less recourse is taken to private facilities and people rely on free public services.

What is Inflation?

  1. Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
  2. Inflation measures the average price change in a basket of commodities and services over time.
  3. The opposite and rare fall in the price index of this basket of items is called ‘deflation’.
  4. Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This is measured in percentage.