The Inflation Scam

 The Inflation Scam

By: Rishita Arora

The biggest buzz in the town lately has been the talk of ‘declining inflation’, with India reportedly touching an all-time low rate of 0.25% which is barely a fraction of 1%. But this sparks an obvious question if inflation is so low, why does everything around us feel more expensive?

From rising school fees to steeper cab fares, the reality of consumers paints a very different picture.

So, is inflation actually down or is this the biggest economic illusion we’ve fallen for?

The Actual Calculation

All eyes widened when India’s CPI inflation rate was announced at just 0.25%, possibly the lowest ever recorded. However, this number doesn’t represent the true cost pressures faced by the average urban middle-class household.

Over 55% of the Indian Population receives subsidized food grains through ration cards, and buys groceries for a price that is far below the government’s cost price.

Likewise, 56% of the current enrollment in India is in the Government Schools, where education is free or extremely low cost. Add to this fact that over 86% Indians own their homes, meaning housing inflation barely affects them.

When these large segments of the ‘shielded population’ are included in the CPI calculation, the overall inflation rate naturally appears much lower than what urban, non-subsidized families actually feel.

The Scam: Why These Numbers Don’t Match Your Life?

The Consumer Price Index (CPI) is the ultimate measure of inflation. It’s the number everyone quotes from the government to the news channels. But CPI is essentially an average, and like all averages, it hides more than it reveals.

CPI is calculated using a fixed basket of goods that represents the “typical Indian household.”

The key problem?
Most urban middle-class families look nothing like this assumed “typical household."

Because if you are a middle class person living in a metropolitan city, renting a house, relying on quick commerce for daily essentials and sending your children to a private school then your reality is nowhere in these inflation numbers. Also, in the past one year, private schools have hiked their fees by 10-20% and by an enormous 169% over the last decade. Even the quick Commerce apps have quietly pushed grocery prices by 20% or more factoring in delivering, warehousing, convenience fees and other expenses.

So while CPI may show a tiny rise, the personal inflation of a middle-class urban consumer is shaped by a very different basket, one that includes rising school fees, rent, transportation charges, and service-sector prices.

In simple words, the inflation number you hear on the news is not the inflation you feel in your wallet. And that gap is exactly what creates the illusion, the idea that inflation is low, when your daily expenses are telling an entirely different story. 

Well, that’s the REAL SCAM!

Inflation for Whom? The Segmented Reality

Inflation is often taken as something that affects everyone equally, but that is certainly not the truth! The number we hear on the news is a single national average, but the real inflation of different income, societal and class groups varies significantly and dramatically.

For poor households, a large portion of essential spending is protected from subsidized food grains, free or low-cost schooling to government-supported healthcare, they receive help at every step. And, since these essentials make up a major part of the consumption basket, the subsidies cushion them from real market prices, resulting in a much lower inflation experience.

The middle class, however, pays the market rates for everything including rent, fuel, private education, medical insurance, transport, and now, quick-commerce convenience. With no subsidies and rising costs, their personal inflation is significantly higher than what the CPI headline number suggests.

For the affluent, inflation looks different yet again. Their consumption leans toward premium, luxury goods, imported products and branded experiences. Inflation for this segment of population either moves too fast or too slow, but it is almost always disconnected from the headline CPI figure.

This situation is well explained by Distributional Inflation Theory, which argues that inflation isn’t a single universal experience, it is deeply class-dependent. Different income groups consume different baskets of goods, so the price pressures they feel varies drastically. Therefore, “your inflation rate is determined not by the economy, but by your economic position within it.”

One Inflation Number Cannot Define a Billion Realities

An urgent call of the moment is to realize that inflation is not a universal experience. A single 'average number' on the newspapers or official headlines cannot truly reflect the real picture of the society. The three segments of the population live in drastically different conditions and pay differently for certainly the same basket of goods.

CPI is presented as a measure of “everyone’s” cost of living, when in reality it represents almost no one’s life accurately. Hence, the real scam isn’t inflation, it is actually believing that the same rate applies to everyone.

Therefore, if India wants a clearer picture of its economic health, it’s time to move beyond a one-size-fits-all metric. We need an Urban Inflation Index as a measure that reflects the actual financial burden felt by the households who do not benefit from subsidies, who pay full market prices, and who are driving the consumer economy.

Written & Published by: Rishita Arora

Credits: Inspired by insights shared by: CA Sarthak Ahuja & Sonia Shenoy

Data: As per the recent NSO Report.

Image Courtesy: Google