Inflation Rate and Poverty: Does Poor become Poorer with Inflation?

Abstract

This paper examines the inflation rates for the period 2005–06 and 2011–12 and concludes that inflation in 2005–06 hurts the poor more since the rise in food prices was substantial in this period and food constitutes a substantial proportion of their total expenditure. The paper observes that there was a substantial rise in Inflation which was experienced in the food grains like egg, fish, and meat, while the growth of inflation rate was observed minimal in case of beverages, footwear, and edible oil. Further, the impact of inflation on poor varied not only across both rural and urban areas but also the impact was different for different time periods. The paper also depicts shifts in the pattern of inflation rate across the expenditure classes between 2005–06 and 2011–12 and establishes inverse association between inflation rate and expenditure in the year 2005-06 for both rural and urban areas while the relationship was completely distinct in case of 2011–12 for both rural and urban areas. The study clearly reveals that bottom thirty percent of the population in rural areas observes same inflation rate as their urban counterparts for the year 2005–06. Finally, the paper concludes that the impact of inflation is not only commodity specific but also decile class specific. Further, the impact of inflation is observed to be different for rural and urban areas. This establishes the role of policy and government intervention through the public distribution scheme favoring the poor section with the aim of minimizing the gap of the impact of inflation experienced by poor and rich.

Keywords: Inflation rates, Total Expenditure, Decile classes, Public Distribution Scheme