Kerala’s Inflation Crisis Exposes India’s Blind Spot

India’s inflation rate fell to a six-year low of 2.10% in June, offering policymakers in New Delhi and Mumbai a reason to celebrate. Yet in Kerala, retail inflation climbed to 6.71%, more than triple the national figure and well above the Reserve Bank of India’s 2-6% tolerance band.

This divergence is not a statistical footnote. It reveals how national averages can mask distinct consumption patterns and local supply shocks.

Nationally, consumer prices eased sharply from 2.82% in May, primarily driven by a high base effect. Food inflation turned negative for the first time in over six years, led by a dramatic 19% plunge in vegetable inflation. 

Rural and urban inflation both declined. Yet, core inflation remained sticky at 4.4%, the highest in 21 months. 

But these national averages mean little in Kerala. The state’s inflation not only bucked the broader trend but worsened, rising from 6.51% in May. It now stands over 200 basis points higher than Punjab, the next highest major state at 4.67%. 

Kerala’s inflation spike has been driven by three sub-groups: oils and fats, fruits, and personal care and effects. Oils and fats posted a staggering 93.9% year-on-year rise in June, compared with 17.75% nationally.

Coconut oil is at the centre of this surge, an essential household item in Kerala, whose prices rose 97.22% across India. 

This increase was no accident. 

Production of copra, the dried coconut used to make coconut oil, fell sharply in Tamil Nadu and Karnataka, slashing arrivals by 75% and pushing Kerala’s retail prices to ₹230 per kg. Climate disruptions cut coconut yields by around 40%, tightening supply further. 

Fruit inflation in Kerala hit 41.35% in June, fuelled by coconut prices that rose over 50% year-on-year nationally. Meanwhile, the personal care and effects sub-group saw inflation of 31.46% in Kerala, more than twice the national rate of 14.76%, largely due to surging gold prices. 

Gold holds a special place in Kerala’s economy, functioning both as adornment and savings. With national gold price inflation nearing 36% and Kerala accounting for almost a third (200-225 tonnes) of India’s total gold consumption, the state is uniquely exposed to such price movements. 

Kerala’s inflation divergence is more than an inconvenience. 

It shows the risk of relying solely on national averages and monetary policy to manage price stability in a diverse country. When one state faces headline inflation above 6% even as the national figures suggest price stability, it underlines the limits of centralised policy tools. 

High inflation in Kerala, shaped by unique consumption habits and supply shocks, hits household budgets, savings, and consumption behaviour much harder than in states aligned with the national trend. 

Addressing this requires better coordination between state and central governments, with region-specific supply-side interventions. 

Without such tailored approaches, India’s headline disinflation will remain a hollow victory for households facing a very different reality.