Economic Survey 2026: Kerala Breaches Inflation Tolerance Band In 2025-26; Delhi Below National Average

As per the Economic Survey 2025-26, throughout much of 2023 and 2024, rural inflation remained above urban inflation. This pattern reflects differences in consumption weights across rural and urban baskets, particularly the larger share of food items in rural consumption, which renders rural inflation more responsive to movements in food prices. Elevated inflation during 2023 and mid-2024 coincides with food price pressures, during which the rural-urban gap widened.

As food inflation eased in 2025, inflation declined across both sectors, with inflation in the rural sector going below that in the urban sector. As food prices are more volatile, rural inflation across the states has shown greater volatility than inflation in urban areas.

In contrast to headline inflation, core inflation in rural and urban areas follows a smoother and more gradual adjustment path, declining steadily through 2023 and early 2024 before stabilising within a relatively narrow range thereafter. Rural core inflation remains marginally higher than urban core inflation, but the gap is modest and stable, indicating broadly similar pricing behaviour and demand pattern across regions once volatile food and fuel components are excluded.

The state-level incidence of inflation in 2025-26 (April-December) 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. The headline inflation in Kerala, for instance, was recorded at 8.05 per cent in 2025-26 (April to December), while in Lakshadweep it was recorded at 6.69 per cent during the same period.

In the rest of the states, average inflation remained within the 2-6 per cent tolerance band of the Reserve Bank of India, or below that. Overall, the clustering of state-level inflation outcomes within the tolerance band suggests increasing synchronisation of inflation across states, with residual deviations largely driven by local relative-price movements rather than broad-based inflationary persistence.

Inflation differentials across States were not purely transitory. All States exhibited positive persistence, implying that 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 relatively higher persistence. States such as Delhi and Himachal Pradesh, on the other hand, were typically below the national average, with comparable persistence. Several States clustered close to the national average, though with differing degrees of persistence.