1. Introduction

Among many adverse effects, the COVID-19 pandemic has led to an unprecedented rise in global inflation in 2021 and 2022, mainly fuelled by surging prices of crude oil and other commodities. According to data from the World Bank, there has been a notable increase in consumer price inflation, rising from 3.5% in 2021 to 8.3% in 2022. The recent publication of IMF’s World Economic Outlook (2023) shows that 84 countries are expected to lower inflation in 2023. Global inflation is expected to fall from 8.8 per cent in 2022 to 6.6 per cent. To arrest the demand side factors, governments across the world have been following restrictive monetary policies. After experiencing a steep price rise during the pandemic, India’s Consumer Price Index - Combined (CPI-C) inflation rate decreased from 6.2% in FY 21 to 5.5% in FY 22. Nonetheless, it remained high compared to the pre-pandemic period due to high inflation in ‘oils & fats’, ‘fuel & light’ and ‘transport & communication’ (Economic Survey, 2023). Though inflationary pressures have been reducing, the emerging concern is higher rural inflation in India. Monthly data shows that rural inflation was more significant than urban inflation for 11 months in the 2022-23 FY. Higher rural inflation is due to an increase in food prices. The main distinction in calculating inflation rates between rural and urban areas lies in the weights for food and beverages. In rural regions, the food and beverage sector alone constitute approximately 54.18 per cent of the Consumer Price Index (CPI) basket. Conversely, in urban areas, this sector carries a weight of 36.29 per cent, representing slightly over a third of the overall consumption basket. This divergence in weightage is due to the inclusion of housing price trends in the CPI index for urban areas, while such trends are not incorporated in the rural areas index. Consequently, rural consumers are more vulnerable to food inflation compared to their urban counterparts, and this is precisely what has occurred.

Kerala had shown exemplary performance in reversing the price trends during the pandemic when the country was reeling with inflationary pressures through active state intervention (Renjith and Kakarlapudi, 2021). The distribution of ‘food kits’ in Kerala contributed to arresting food prices, and this resulted in lower rural inflation than urban inflation since food has the highest weight in rural areas. This contrasted with other southern states, where urban prices were lower than rural prices during the same period (Kakarlapudi & Renjith, 2020; 2021). This article analyses the recent price trends in Kerala compared to other South Indian states. The critical question is, since the food-kit distribution was withdrawn many months ago, are the rural prices rising faster than urban prices in Kerala?  Additionally, the article conducts a component-wise analysis to identify the factors that contribute the most to rural and urban CPI inflation in Kerala.

The analysis has been carried out using monthly Consumer Price Index (CPI) data provided by MOSPI. The period for the analysis starts from the second quarter of 2021 since the price trends during the pandemic have been extensively covered by Kakarlapudi and Renjith (2021) and Renjith and Kakarlapudi (2022) The  analysis covers eight quarters from July-Sep (Q2) 2021-22 to Q1 2023-24, the latest quarter covers data for only two months.

2. Price trends in Kerala: A comparative analysis

Kerala maintained the lowest inflation among all the South Indian states till 2022-23 Q1 and lower inflation than the national average till 2022-23 Q4 (Table 1).  It is evident that Kerala successfully arrested inflationary pressures by distributing food kits. However, inflation in Kerala has been gradually rising from 2021-22 Q3 to 2022-23 Q4, while at the national level, there is a southward trend in inflation from 2022-23 Q1. Apart from Tamil Nadu, all other states have shown a downward price trend. The gap between Kerala’s and India’s inflation has systematically reduced from 2021-22 Q4. Kerala’s inflation was almost 30 per cent lower in 2021-22 Q4, and it narrowed to almost zero in 2022-23 Q4. Most importantly, Kerala’s inflation though declined marginally to 5.03 per cent in 2023-24Q1, is now higher than the national average (4.48 per cent). For the first time since the COVID-19 pandemic, Kerala’s inflation recorded higher than the national average, indicating trends similar to the pre-pandemic situation.                                                 

A comparison of Kerala’s inflation with its southern counterparts reveals a similar trend. Kerala’s post-pandemic inflation rate was lower than most of the southern states. During the second quarter of 2021, Kerala experienced an inflation rate that was 96% lower than Telangana and 71% lower than Karnataka, which had the highest inflation rates among the southern states. However, by the fourth quarter of 2022, Kerala surpassed Karnataka in terms of inflation numbers, and the relative gap between Kerala and Telangana decreased to 48%. In fact, the gap in inflation between Kerala and all other southern states declined consistently over the quarters. In the latest quarter (2023-24 Q1), Kerala recorded the highest inflation than Karnataka and Andhra Pradesh and marginally lower than Tamil Nadu and Telangana. The emerging inflation trends in Kerala are alarming as they pressure the people.

3. Shift in inflationary pressures

The previous research has shown that Kerala had higher rural inflation than urban areas before the pandemic, and during the pandemic, rural inflation was lower (Kakarlapudi and Renjith, 2020). However, rural inflation in Kerala has gradually increased since 2022-23 Q1 and surpassed urban inflation. Interestingly, other states started showing higher inflation after 2021-22 Q3, except in Karnataka, where rural inflation has been higher than urban inflation since 2022-23 Q3 (Table 2). The decline in inflation at the aggregate level for India was due to a faster decline in urban inflation until the latest quarter (2023-24 Q1).