Kerala is the only state to have reversed the increasing inflation trend during the pandemic year (2020-21) and recorded the lowest headline inflation among the south Indian states.
Kerala shows remarkable performance as compared to the national average and other south Indian states in curtailing food prices, especially in rural areas.
Comparatively, Kerala maintained consistency in the base and the momentum effect on food prices during the pandemic quarters, which helped ease food inflation.

Introduction
The impact of supply shocks due to COVID 19 has contributed to soaring prices, especially food prices, during the first two quarters of 2020-21 despite the weak aggregate demand (RBI, 2021). The observed rise was driven by an increase in fuel and transportation costs along with an increase in some components of the food basket. While the prices showed an upward trend in most Indian states during the pandemic year, Kerala showed an impressive trend of declining prices during the pandemic compared to the pre-pandemic price trends, particularly in rural areas (Kakarlapudi and Renjith, 2020; Renjith and Kakarlapudi, 2021). When the economies were recovering from the first wave of the pandemic, India faced   the worst second wave with a surge in the number of cases, death tolls, and collapsing health systems. The massive second wave again forced the state and local governments to impose curfews and restrictions on movement leading to disruptions in supply chains, albeit less intense. Over and above the domestic supply shocks due to the second wave, inflation in the US and global inflationary pressures could create inflationary pressures in the domestic economy through import of goods (Patnaik and Pande, 2021).  
As is well known, Kerala demonstrated exemplary performance in the first wave of the COVID-19 pandemic through active participation of local governments and the people's campaigning. But Kerala turns out to be one of the most affected states in the second wave and continues to register record high numbers till the end of September 2021. In this context, the question that assumes importance is, has Kerala remained successful in arresting the price rise despite the devastating second wave amidst higher inflationary pressures globally? This article builds further on Kakarlapudi and Renjith (2020) and Renjith and Kakarlapudi (2021) and analyses the price trends during 2020-21 and Q1 of 2021-22 (the period that corresponds to COVID second wave) using the monthly Consumer Prices Index (CPI) data published by MOSPI. The price changes are analyzed through estimating 'base effect', which represents price change from the reference months, and 'momentum effect', which represents the changes from the previous months. The rationale is that the difference between the year-on-year (YoY) rate of inflation in two subsequent months is approximately the same as the difference between the month-on-month (MoM) rate in the current month and the month-on-month rate twelve months previously (GoI, 2021). The formula for estimating the base effect and momentum effect is as follows.
π_t-π_(t-1)=[(ln⁡(p_t )-ln⁡(p_(t-1) ) )- (ln⁡(p_(t-12) )-ln⁡(p_(t-13) ) )]*100

where π  is the rate of inflation and p is the price index. While left-hand side variable π_t-π_(t-1)describes why inflation in tth period moved to t-1th period (YoY inflation in period t), the right-hand side variables explain the month-on-month changes in the price index, capturing the recent MoM price changes p_t-p_(t-1)  with MoM price changes a year ago, i.e., pt-12-pt-13.
Headline inflation during the pandemic: Kerala's trend reversal
The previous article by Kakarlapudi and Renjith (2020) showed that Kerala was the only state among the south Indian states to reverse the increasing headline inflation during May to September 2020. More importantly, headline inflation in rural Kerala was lower than in Urban Kerala during the pandemic, while the trend was just the opposite in other states. However, their analysis used the data up to September 2020, the period after which COVID cases started to increase gradually. Extending the data further, Table 1 compares the trends in headline inflation during the pandemic with pre-pandemic years. The combined CPI for all India increases to 6.16 percent in 2020-21 from 4.77 percent in 2019-20. This increase could be due to supply disruptions during the lockdowns, non-availability of labour at mandis, increased transportation costs etc. The natural shocks in the form of excess rains during the kharif harvest led to crop damages and pushed up food prices, especially vegetables (RBI, 2021). The prices increased during the pandemic year both in rural and urban India (Table 1).
Contrary to the trends observed at all India level, Kerala shows price deceleration during the pandemic year (2020-21). The overall CPI in Kerala marginally declined from 6.14 percent in 2019-20 to 5.95 percent in 2020-21. As a result, the level of inflation in Kerala during 2020-21 is second-lowest after Karnataka (5.77 percent). The finding that Kerala is the only South Indian state to record lower inflation during the pandemic year compared to the pre-pandemic year reaffirms the initial finding by Kakarlapudi and Renjith (2020). In addition, only Kerala and Tamil Nadu show rural inflation lower than urban inflation during the pandemic.
Table 1: Headline inflation during the COVID-19 Pandemic

Note: The data for April and May 2020 was imputed. For states, years 2020-21 corresponds to an average of June 2020 to March 2021.
Source: Authors estimates based on NSO
 

Constituents of CPI
The drivers of CPI headline inflation during the pandemic year (2020-21) showed different trends across states as well as rural-urban categories. It is important to note that the data for constituents of CPI at the state level is available only from August 2020. The figures in Table 2 indicate the average growth in prices during August 2020 to March 2021. The following inferences could be drawn from Table 2. First, Kerala shows lower prices at the aggregate level and in the rural and urban areas as in most commodity groups except personal care and effects and miscellaneous as compared to all India and South Indian states. The growth of prices in personal care is double (20.82 percent) than that of all India average (10.4 percent). Though Andhra Pradesh, Karnataka and Tamil Nadu show higher prices than the national average, their growth rates are much lower than Kerala. Similarly, Kerala shows higher prices in the miscellaneous category (7.68 percent) compared to the all-India average (6.61). Among the south Indian states, Telangana shows higher prices of miscellaneous items (8.03 percent) than Kerala. In all other commodity categories, Kerala's price rise is lower than the national average and all other south Indian states, especially food and beverages. RBI (2021) showed that with the weight of 45 percent, food and beverages prices contributed to 54 percent of the overall inflation during 2020-21. It was argued that prices food price inflation showed a slight decline May-June 2020 with the gradual relaxation of lockdown conditions and easing supply constraints, but it picked up again from August 2020-January 2021 as excess rains led to crop damage. The primary sources of food inflation were pulses, oils and fats, meat and fist, eggs, and spices, animal protein items, and vegetables (Renjith and Kakarlapudi, 2021). Despite the inflationary pressures in food items, Kerala has successfully managed to control the prices of food and beverages throughout the pandemic year, notwithstanding the surge in COVID cases from October 2020.
Table 2: Constituents of CPI inflation during the Pandemic