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Chart: Not housing but health is biggest contributor to India's inflation

BS Web Team/ 13 Feb 19 | 12:29 PM

Illustration by Binay Sinha

India has witnessed a steady rise in health inflation in the past few months, even as the rate of overall inflation has fallen. In fact, in January 2019, health as a contributor to inflation even surpassed education and housing.   While India's housing inflation is still above 5 per cent, it is likely to decline further as the impact of the 7th Pay Commission implementation abates.

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Housing inflation, which hit a peak of 8.50% in April following the implementation of the 7th Pay Commission's recommendations, has since fallen steadily. It stood at an 18-month low of 5.1% in January. 

"After having been constant from December 2017 to June 2018, house rent inflation is now falling. It touched 5.1 per cent in January 2019. Given the advantage of a high base, this particular category of inflation is likely to stay low till the end of this financial year," said Sujan Hajra, chief economist at Anand Rathi in a brokerage report. 

Here's an interesting fact:  The housing category contributed only 16 per cent to the overall inflation figure, second only to health, which contributed 19 per cent in January. However, in the last one year, house rent has been the highest contributor to inflation, as seen in the figure below. 

Source: Anand Rathi

Source: Anand Rathi

In fact health costs in India are rising at double the inflation rate. A report by Mercer Marsh Benefits said forecast medical trend rate will be 10 per cent in India, while inflation will be at 5 per cent. Of this, outpatient expenses, including medical check-ups, doctor fees, and medicines account for a higher chunk than the actual hospitalisation expenses.

In a research note last month, Soumya Kanti Ghosh, group chief economic advisor, State Bank of India, also noted that “the most puzzling aspect of inflation data is the increase in rural health and education inflation at the time when rural demand is collapsing". So what gives? 

Ghosh said the increase in health inflation could be due to a combination of methodological changes in data collection and implementation of the govt programme Ayushman Bharat to provide health insurance coverage to 10 lakh poor and economically backward families. The scheme might have led to an upgradation of health services at least in rural areas.

As Business Standard reported earlier, the health index in CPI is created using price data on hospital and nursing home charges, medicine (non-institutional), family planning devices, spectacles, doctors/surgeons’ fee — first consultation — (non-institutional), X-ray; ECG; pathological test (non-institutional), as well as other medical expenses (non-institutional).

Of these indicators, medicine (non-institutional) — which alone accounts for 68 per cent of the health index — had risen from 4.5 per cent in January 2018 to 10 per cent in December. This suggests that much of the recent upward trend observed in health inflation is on account of the rise in this indicator.

Now, medicine (non-institutional), in turn, is based on prices of pain-killer tablets, cough syrup, vitamin b complex, anti-fever and antibiotics, among others.

But prices of these items have not risen in line with what is observed from the index, experts told BS. 

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