Why is Inflation 8% in Kerala but only 0.01% in Bihar?

We often hear about India's inflation rate (price rise) being around 5% or 6%. But did you know that inflation is not the same for everyone in the country?

Recent data from the Ministry of Statistics and Programme Implementation (MoSPI) for the period of April-December 2025 shows a shocking difference between states:

• Bihar: Inflation is almost zero (0.01%).
• Kerala: Inflation is very high (8.05%).

How can two states in the same country have such a massive gap? Is it good to have low inflation like in Bihar?

Let’s break down the reasons simply.

1. What We Buy Matters (Consumption Patterns)

Inflation is calculated based on a "basket" of goods and services that people buy.

• In Bihar: People spend more on essentials like food grains. Since Bihar is an agrarian (farming) state, food is locally available and cheaper.
• In Kerala: People spend more on services like healthcare, education, and housing. Service prices tend to rise faster because they depend on human wages, which are higher in Kerala.

2. The Income Effect

There is a direct link between how much people earn and how much prices rise.

• Kerala: People have higher incomes (partly due to remittances from abroad). When people have more money, they are willing to pay higher prices for goods and services. Businesses know this and can raise prices easily.
• Bihar: Income levels are lower. People are very sensitive to price hikes. If a shopkeeper raises prices, people might stop buying. This keeps prices suppressed.

3. Rent and Housing

A big part of the inflation calculation comes from Housing and Rent.

• Kerala: It is highly urbanised. Land is expensive, and rent is high. When rent goes up, the overall inflation number shoots up.
• Bihar: Urbanisation is lower. Many people live in their own homes or in rural areas where rent is not a major expense. This keeps the inflation number low.

4. Wages: The Cost of Labour

• Kerala: Daily wages are among the highest in India. If you hire a worker to build a house or a driver to drive a taxi, you pay more. These high wages increase the cost of services, leading to higher inflation.
• Bihar: There is a labour surplus. Wages are lower compared to Kerala. Lower wages mean the cost of services remains low.

5. Where Does the Food Come From?

• Bihar: As a farming state, it produces much of its own food. Supply chains are short, so transport costs don't add much to the price.
• Kerala: It depends heavily on other states for vegetables and food items. When you transport food from far away, fuel costs and logistics add to the price, making food more expensive.

Is Low Inflation Always Good?

Looking at the chart, you might think Bihar is doing better because its inflation is 0.01%. But in economics, extremely low inflation can be a warning sign.

• Low Inflation (Bihar): It might indicate weak demand. If people aren't buying things, prices don't go up. It can signal slower economic activity.
• High Inflation (Kerala): While 8% is high and hurts the wallet, it often signals strong demand and economic momentum. It means people are earning and spending.

Conclusion

The massive gap between Kerala (8.05%) and Bihar (0.01%) shows that India is not just one economy; it is a collection of many different state economies.

Inflation is not just about government policy; it is about lifestyle, income, and geography.

• In Kerala, you pay the price for a service-heavy, high-wage lifestyle.
• In Bihar, prices are low because the economy is driven by essentials and local agriculture.

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