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Understanding India’s Food Inflation: The Role of Demand and Supply Factors
Author:
Rahul Anand
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,
Naresh Kumar
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, and
Mr. Volodymyr Tulin
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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 002
Language:
English
Publication Date:
05 Jan 2016
DOI:
https://doi.org/10.5089/9781513581347.001
ISBN:
9781513581347
ISSN:
1018-5941
Pages:
42
Keywords:
WP; food inflation; buffer stock; consumer demand; food price; cereal buffer stocks; monetary policy; India; inflation dynamics; food expenditure; aggregate food demand equation; expenditure elasticity; liquidation policy; commodity price; food category; food inflation volatility; consumer food demand pattern; food demand pressure; Inflation; Agricultural commodities; Food prices; Total expenditures; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2016: Issue 002