(wl 7005)- Measuring Inflation Inequality in India

Consumer Price Index (CPI) inflation measures the average cost of living in India, however, it does not tell about the distributional consequences of inflation across different strata of the populace. This paper is the first attempt to track the inflation rates of the distribution of Indian households based on consumption weights of different fractiles of rural and urban households from 2015 to 2023. We compute the consumption expenditure shares of different fractiles of Indian households, from the poorest to the richest, and compute the inflation faced by them. The rate of inflation so derived differs markedly from the rate of inflation that is based on the average cost of living or the “general” basket of commodities purchased by a household. This empirical exercise yields two major results. First, the inflation rate for the poor is higher than the inflation rate for the rich in years when food inflation has been high. Second, the coefficient of variation of inflation, a measure of inflation volatility, falls from 0.47 for the poorest households to 0.21 for the richest households. We show that the volatility of inflation is higher for the poor vis-à-vis the rich households and has persistently remained higher for the poor households. This paper argues that this inequality of inflation and high volatility is anti-poor and requires immediate policy intervention.