The effective inflation faced by the bottom 50% of the population (both in rural and urban areas) stood at 7.2% in 9MFY23.

Ind-Ra’s analysis reveals that a high inflationary episode driven by food and fuel erodes the purchasing power of poorest more than well-off households.

India Ratings and Research (Ind-Ra) opines the recent inflationary episode has affected the lower strata of the population in 9MFY23, unlike FY22. According to Ind-Ra’s estimates, the effective inflation faced by the bottom 50% of the population (both in rural and urban areas) during April-December 2022 (9MFY23) was 40bp higher than the headline retail inflation. The effective inflation faced by the bottom 50% of the population (both in rural and urban areas) stood at 7.2% in 9MFY23.

“Ind-Ra’s analysis reveals that a high inflationary episode driven by food and fuel erodes the purchasing power of poorest more than well-off households. This is in contrast to the scenario when inflation is driven by core items (which excludes food and fuel)”, says Paras Jasrai, Analyst. However, there was significant variation across the states in this regard. 

Retail inflation does not affect all households in the same way because the consumption baskets of households belonging to different expenditure strata vary. In general, the share of food & beverages items in the consumption basket of households belonging to the lower expenditure class would be higher and vice versa. This also means that the effective inflation faced by these households would be higher than the headline inflation if it is driven by food items.