We all know that when prices rise, purchasing power shrinks. But, does inflation affect all income classes the same way?

To understand, consider how the three components of inflation — food, fuel and core — are moving.

Food inflation fell significantly from ~5% at the start of this fiscal to 0.7% in September. Fuel inflation rose from 8% to 13.6%. And core inflation remained sticky near 6%.

Not only did they diverge, but their burden also varied by income group, primarily because the share of spending on each of these commodity groups differs across income classes.

To show this, we segregate the population into three broad groups by expenditure — the bottom 20%, the middle 60%, and the top 20% for urban and rural — using the National Sample Survey Organisation (NSSO) data.

Then, the expenditure share of each commodity group was mapped with the relevant inflation during the last and this fiscal so far (up to September 2021). We then used these weights to calculate the overall inflation for each class (see Table 1).

We find that the urban poor felt the heat of inflation the most. While overall inflation declined for allincome classes in fiscal 2022 compared with the last fiscal, urban poor (bottom 20%) bore the brunt in both time periods. The key contributors to this were fuel and food, which have the highest weights for thebottom 20%.

Also, urban inflation in these two commodity groups was higher than that in rural areas.

1 inflation excluding the volatile food and fuel components
² 2011-12 Consumer Expenditure Survey, NSSO. Details in next page