Finance Ministry's Comments On Inflation Contradicts PIB Fact Check

The Finance Ministry presents analysis stating inflation may hurt the well-off more than the poor; something PIB has denied

On May 15, the Press Information Bureau's (PIB) factchecking unit countered a social media meme that claimed the ministry of finance has said that inflation hurts the rich more than the poor. The meme had used the picture of Finance Minister Nirmala Sitharaman, thereby implying that she had made this statement..

The tweet can be seen below.

BOOM searched for statements made by Nirmala Sitharaman about inflation but found no publicly available quote saying the above. Also, while it is true that the Ministry of Finance has not released any statement, a similar observation has been made by the ministry in its latest 'Monthly Economic Review' for April 2022.

The April edition says that inflation impacts top-income groups more than lower-income groups in 2022. Further, the report also stated that this observation takes place across both urban and rural areas.

The abstract of the document states:

Evidence on consumption patterns further suggests that inflation in India has a lesser impact on low-income strata than on high-income groups.

India is currently seeing high inflation numbers, with the latest data by the Ministry of Statistics and Programme Implementation showing retail inflation at 7.79%, an 8-year high.

Food inflation for April was in double digits, leading the government to ban wheat exports.

What evidence on inflation does the report present on income?

The report has a dedicated section that outlines the evidence that it has seen, using consumer expenditure data of the National Sample Survey.

First, the report outlines how much three rural and urban income groups - the bottom 20%, the middle 60% and the top 20% - spend across three categories:

  • Food and beverages
  • Fuel and light, which includes transport
  • Refined core: A basket of consumer goods excluding food and fuel (read on page 92 here)

The report states that inflation numbers for all months of financial 2021 - 2022 (that ran from April 2021 to March 2022) are mapped with these expenditure numbers, across both urban and rural area.

Headline (or overall) inflation as measured by the consumer price index fell from 6.2% in FY21 to 5.5% (70 basis points [bps] or 0.7 percentage points) in FY22. The fall was 90 percentage points in urban area, but only 50 basis points in rural area. But this fall was unequally across the three income groups.

In urban areas, the results show:

  • The fall of 120 bps (1.2 percentage points) was highest for the bottom 20%
  • It was a little lower at 110 bps (1.1 percentage points) for the middle 60%
  • It was the lowest for the top 20% at 90 bps (0.9 percentage points)

The report also goes ahead to highlight how inflation reduced at a pace higher than the urban average.

For rural areas, the results show:

  • The bottom group saw a reduction of 80 bps
  • The middle group saw a reduction of 60 bps
  • The top group actually saw inflation rise from 5.5% to 5.6%: 10 bps or 0.1 percentage points

"Therefore, it can be inferred from the above analysis that lower inflation has reinforced the favorable redistribution of the income from top to bottom and middle-income group", the report states.

The report can be read here.

Why is the statement in the graphic being mocked?

The findings of this report differs from how inflation impacts the well-off versus the poor according to more traditional notions of economics. Therefore, it is being mocked, as indicated by the words, "Side effects of using WhatsApp", as mentioned in the graphic, now countered by PIB.

Jerome Powell, Chairman of the Federal Reserve, at his renomination hearing before the US Senate, said, "We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation."

A cliché associated with inflation also calls it the "cruelest of taxes" as it reduced savings and buffers of the poor faster than that of rich.

Globally, the current wave of inflation, could wreck havoc upon the world's poor, studies show.

Also Read: RBI Hikes Repo Rate, Cash Reserve Ratio In Unscheduled Move

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