The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Over the past decade, India has seen a prolonged period of high inflation, to a large extent
driven by persistently-high food inflation. This paper investigates the demand and supply
factors behind the contribution of relative food inflation to headline CPI inflation. It
concludes that in the absence of a stronger food supply growth response, food inflation
may exceed non-food inflation by 2½–3 percentage points per year. The sustainability of a
long-term inflation target of 4 percent under India’s recently-adopted flexible inflation
targeting framework will depend on enhancing food supply, agricultural market-based
pricing, and reducing price distortions. A well-designed cereal buffer stock liquidation
policy could also help mitigate food inflation volatility.