Migration of labour from low-income states resulting in higher inflation in Kerala, TN: SBI study -OxBig News Network

Higher purchasing power anchors higher inflation, and thus southern states have higher inflation, suggests an SBI study.
| Photo Credit: Thulasi Kakkat

The migration of labour from low-income states to high income states in search of employment opportunities is resulting in higher inflation in high income States in the South such as Kerala and Tamil Nadu, a research report by the State Bank of India (SBI) showed.

“The region wise analysis of retail prices shows that southern states display a higher trend in prices for items like vegetables, cereals and most of the pulses,” as per the paper.

“Northeast and Western regions have had lowest inflation against higher inflationary trends displayed by Southern and Eastern regions,” it said.

A back of the hand analysis indicated, in the Post-Pandemic period (FY21 to FY25), inflation declined by 3.4% in NE areas, while in Southern region it declined by 2.6% only, it said.

Higher taxes in South

Primary trends suggest higher taxes levied on petrol/diesel, liquor, as also registration charges for automobiles and flats by the Southern states could be the driver of higher inflations, it pointed out.

Going by the share of sales tax collection by states, Southern states hold the highest share of 30%, followed by Northern region according to the paper. 

“Reading between the lines, we believe that migration of labour from low-income states to high income states in search of employment opportunities is resulting in higher inflation in high income states than lower income states as vouched by food inflation across cohort of high income / middle income and low-income states suggesting higher purchasing power anchors higher inflation,” India’s largest lender said in the report.

Stating that India’s CPI inflation moderated to 7-month low of 3.6% in Feb’25 due to easing in food and vegetable prices, it said as per State-wise data, inflation in bigger states continued to outstrip the all-India inflation rate of the same month.

“Among the States, Kerala clocked the highest inflation rate of 7.3% in Feb, followed by Chhattisgarh 4. 9%,” it said.

Rural inflation higher than urban inflation

“There are 9 States among major states, where inflation in rural areas is higher than the all-India rural inflation. Similarly, there are 8 States where urban inflation is higher than all India urban inflation,” it pointed out. 

Rural inflation continued to outpace urban inflation which is mainly due to the higher food prices and the rural basket of food items weight (54.2%) is higher than the urban weights (36.3%), SBI report said.

Interestingly, high income states have an average food inflation CAGR% of 5.26%, above national level CAGR% of 5.18 from FY14, it added.

Middle income group have an average CAGR% of 5.03% – and lower-income group’s average CAGR is at 4.95% during the same period.

“This shows the purchasing power of higher income groups has higher inflation,” it highlighted.

TN inflation highest, Gujarat and Punjab lowest

“Among all 35 states/UTs during the period FY13 and FY25 Tamil Nadu inflation is higher than all India inflation for 9 years out of the last 13 years,” it said.

“While Gujarat and Punjab has lower inflation than all India inflation for 9 years from the last 13 years,” it added. 

Starting that CPI inflation may come down to 3.9% in Q4 FY25 and average to 4.7% in FY25, SBI said based on this trend, “we expect FY26 inflation may come 4.0-4.2% and core inflation in the range of 4.2% to 4.4%.”

“With benign inflation this month and going forward, we expect a cumulative rate cut over the cycle could be at least 75 basis points, with successive rate cuts in next policy April and August 2025. With an intervening gap in Aug’25, the rate cuts cycle could restart from Oct’25,” it concluded.