Inflation going up in South from migration from poorer States

Sub: Eco

Sec: Inflation and unemployment

Context:

A recent State Bank of India (SBI) report highlights that labour migration from low-income states to high-income states is contributing to higher inflation in the richer southern states, such as Kerala and Tamil Nadu.

More on news:

India’s Consumer Price Index (CPI)-based inflation moderated to 3.6% in February 2025, largely due to easing food and vegetable prices. However, inflation in larger States continued to outstrip the national average. Inflation refers to the general increase in price levels.
With inflation expected to remain benign, SBI anticipates a cumulative rate cut of at least 75 basis points in the upcoming policy cycle.

Regional Inflation Trends:

Southern States: The prices of key items like vegetables, cereals, and pulses have shown a significant increase.
North-East and Western Regions: These areas have experienced relatively lower inflation compared to the southern and eastern regions.
Post-Pandemic Inflation Trends: From FY21 to FY25, inflation in the North-East declined by 3.4%, while the decline in the South was lower at 2.6%.

Taxation and Inflation:

Southern states have imposed higher taxes on petrol/diesel, liquor, and vehicle registrations, which could be driving inflationary pressures.
Southern States contribute the highest share (30%) to the total sales tax collection in India, followed by northern States.

Impact of Labour Migration on Inflation:

Labour migration from low-income to high-income States has led to increased inflation in the richer States. The migration boosts demand for goods and services, which in turn drives up prices.
The SBI report notes that higher purchasing power in these high-income states anchors higher inflation, particularly in food prices.

Consumer Price Index (CPI):

A comprehensive tool for estimating price changes in a basket of goods and servicesthat is representative of consumption expenditure in an economy is the Consumer Price Index.
One of the most significant economic statistics, it provides an estimate of the cost of living and is typically based on the weighted average of commodity prices.
Four kinds of CPI are as follows:CPI for Industrial Workers (IW), CPI for Agricultural Labourer (AL), CPI for Rural Labourer (RL), CPI (Rural/Urban/Combined).
The first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.

CPI vs WPI:

Context	Wholesale Price Index (WPI)	Consumer Price Index (CPI)
Definition	Amounts to the average change in prices of commodities at the wholesale level.	Indicates the average change in the prices of commodities at the retail level.
Publishing Office	Office of Economic Advisor (Ministry of Commerce & Industry)	National Statistical Office
Commodities	Goods only	Goods and Services both
Inflation Measurement	First stage of a transaction	Final stage of a transaction
Prices paid by	Manufacturers and wholesalers	Consumers
Types of Commodities Covered	Manufacturing inputs and intermediate goods like minerals, machinery, basic metals, etc.	Education, communication, transportation, recreation, apparel, foods and beverages, housing, and medical care
Base Year	2011-12	2012