Divergence in inflation among states on the rise

CHENNAI: The divergence in inflation rate across states has increased in recent months. In February 2019, while inflation in Kerala was 5.5%, Himachal Pradesh saw disinflation (-2%).Incidentally, the divergence is not being driven just by conventionally volatile components such as food, but also by more stable and sticky demand side components such as miscellaneous items that includes health, education, recreation, personal care items, transport and household goods. The CPI (consumer price inflation) of miscellaneous items was a high 8.9% in Kerala. But it was just 2.9% in Goa. States with higher share of services as a percentage of GDP (gross domestic product) have recorded higher inflation. Services accounts for 64% of the GDP in Kerala. Chhattisgarh and Goa, which have a low share of services, have witnessed lower inflation.Inflation has gradually declined from over 4.5% in April 2018 to 2.6% in February 2019. However, these figures mask the growing divergence in inflation across states. The standard deviation, a simple measure of variation, or the divergence in states' inflation from the mean, has been increasing. In 2017-18, the standard deviation was close to 1.3, while in the current fiscal it has risen to 1.7. A higher standard deviation indicates greater divergence. The range of inflation rates across states has also widened.With inflation above 5% in Assam and Kerala, the range, in comparison to Himachal Pradesh, has widened to 7%, data with the Ministry of Statistics and Programme Implementation compiled by HDFC Bank showed. The standard deviation for rural inflation across states has been close to 2.5 compared to 1.4 in urban areas."This signals that a large part of the variation in inflation across states can be explained by the rural inflation patterns," said Abheek Barua, chief economist, HDFC Bank.