Understanding India’s Food Inflation: The Role of Demand and Supply Factors

Rahul Anand, Naresh Kumar and Volodymyr Tulin

No 2016/002, IMF Working Papers from International Monetary Fund

Abstract: 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.

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 (search for similar items in EconPapers)
Pages: 42
Date: 2016-01-05
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Citations: View citations in EconPapers (6)

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