**Executive Summary**
The Economic Survey 2025-26, presented to Parliament, observes a decline in rural inflation compared to urban inflation, a reversal from 2023-2024 trends. State-level inflation largely mirrored the national trend, with most states remaining within the Reserve Bank of India's 2-6% tolerance band, except for Kerala and Lakshadweep. The survey period covers state-wise CPI inflation data from January 2014 to December 2025.
**Key Points / Main Content**
* **Inflation Trends:**
* Rural inflation declined and remained lower than urban inflation in 2025-2026, contrasting with the higher rural inflation observed in 2023 and 2024.
* Easing food inflation contributed to the overall decline in inflation across both rural and urban sectors.
* **State-Level Inflation:**
* Most states experienced a reduction in inflation, aligning with the national trend, and remained within the 2-6% tolerance band.
* Kerala and Lakshadweep were exceptions, with retail inflation exceeding the 6% upper tolerance band.
* **Factors Influencing Inflation:**
* State-level inflation deviations are largely due to local relative-price movements, not broad inflationary persistence.
* States with higher average wage rates tend to experience relatively higher inflation.
* State-level inflation rates show a positive association with wage rates, state-level GDP growth rates, and COVID impact.
* Industrial output showed negative association with state-level inflation.
* **Government Measures:**
* Timely trade measures led to lower retail price volatility during 2022-2024.
* Proactive government interventions, such as reduced import duty on crude edible oil and strategic releases of buffer stocks, helped control food prices.
* Rationalization of GST rates ahead of the festive season in 2025 helped temper consumer goods and services prices.
* GST imposition was found to be price neutral for state-level inflation differential.
**Impact Analysis**
**Stakeholder: Rural Population**
* **Impact:** Reduced rural stress due to lower rural inflation compared to urban inflation.
* **Action Required:** None specified.
**Stakeholder: Consumers in Kerala and Lakshadweep**
* **Impact:** Higher retail inflation, exceeding the upper tolerance band.
* **Action Required:** None specified.
**Stakeholder: State Governments**
* **Impact:** Heterogeneous state-level inflation dynamics affected by local conditions and wage rates.
* **Action Required:** None specified.
Key Entities Referenced
Economic Survey 2025-26: A document tabled in the Parliament discussing rural inflation trends and state-level inflation incidence.
Reserve Bank of India: Referenced as setting the 2-6 per cent tolerance band for average inflation.
Ministry of Finance: Releasing the information on rural inflation trends and state-level inflation.
GST: Mentioned in the context of its impact on state-level inflation differential.
Ministry of Finance
RURAL INFLATION ON A DECLINING TREND
FURTHER REDUCING RURAL STRESS;
INFLATION REMAINS WITHIN THE TOLERANCE BAND IN
MOST STATES;
प्रव तथ: 29 JAN 2026 2:15PM by PIB Delhi
The Economic Survey 2025-26 tabled in the Parliament today by the Union Minister of Finance and
Corporate affairs, Smt. Nirmala Sitharaman has observed that unlike previous years (2023 and 2024), rural
inflation declined and remained lower than the urban inflation, further reducing rural stress. Throughout
much of 2023 and 2024, rural inflation remained above urban inflation. This pattern reflected a difference
in consumption weights across rural and urban baskets, particularly the larger share of food items in rural
consumption, which rendered rural inflation more responsive to movements in food prices. During 2025
as food inflation eased, inflation declined across both sectors, with inflation in the rural sector going
below that in the urban sector.
During 2025-26, the state-level incidence of inflation followed the national trend, with an across-the-board
reduction in inflation, except in Kerala and Lakshadweep, where retail inflation breached the upper
tolerance band of 6 per cent. In rest of the states, average inflation remained within the 2-6 per cent
tolerance band of the Reserve Bank of India, or below that.
Deviations in State inflation are largely driven by local relative-price movements rather than broad-based
inflationary persistence. Based on the monthly State-wise CPI inflation data from January 2014 to
December 2025, the Survey examined whether some states consistently recorded higher or lower inflationthan the national average. Survey says, inflation differentials across States were not purely transitory and
deviations from the national average often extended beyond a single month. Far-end States in the South
and Northeast tended to have recorded inflation above the national average, with States such as Delhi and
Himachal Pradesh, on the other hand, were typically below the national average. (Jan 2014 – Dec 2025)
While national factors remain central in shaping inflation outcomes, State-level inflation dynamics display
heterogeneity over time. An examination of inflation and wage rates at the state-level over a decade
indicates that the states with an average wage rate above the national wage tend to experience a relatively
higher inflation. Survey notes that “our further analysis demonstrated that the state-level inflation rates
show a significant positive association with wage rates, state-level GDP growth rates and COVID impact.
However, the share of industrial output showed negative association with the state-level inflation,
reflecting the benign effect of supply-side efficiencies in manufacturing sector in dampening price
pressures”. It further adds that GST imposition was found to be price neutral for state-level inflation
differential.
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