Does Inflation Affect Indian Households Differently Across Household Expenditure Groups?

Inflation is commonly measured using the Consumer Price Index (CPI), but the inflation experienced by individual households may differ depending on their patterns of expenditure. This study investigates whether inflation affects Indian households differently across household expenditure groups. Using expenditure data from the Household Consumption Expenditure Survey (HCES) 2023–24 and the CPI 2024 framework, the study divides households into lower, middle, and higher expenditure groups and examines rural and urban households separately. Effective household inflation is estimated by applying expenditure weights to the inflation rates of different categories of goods and services. The preliminary results indicate that effective inflation can vary across household expenditure groups because households allocate different proportions of their expenditure to different categories. The findings therefore provide preliminary support for the hypothesis that differences in household expenditure patterns are associated with differences in effective inflation. However, the results should be interpreted cautiously because some HCES expenditure categories do not correspond perfectly to individual CPI categories. Overall, the study demonstrates that the headline CPI inflation rate may not represent the exact inflation experienced by every household and that expenditure composition is an important factor when analyzing the distributional effects of inflation.