Food Inflation in India: Causes and Consequences
Publication dateJul, 2015
DetailsNIPFP Working Paper No. 151
AuthorsRudrani Bhattacharya and Abhijit Sen Gupta
Average food inflation in India during the period 2006-2013 was one of the highest among emerging market economies, and nearly double the inflation witnessed in India during the previous decade. In this paper, we analyse the behaviour and determinants of food inflation in India. We find that both demand and supply factors have contributed to the recent surge in food inflation in India. On the demand side, we test the often-cited hypothesis that rising per capita income and diversification of Indian diets has raised the demand for high-value food products and thereby added to inflationary pressures. We find that rise in demand, relative to the supply of a commodity, results in upward pressure in commodity prices. Moreover, rise in prices of key inputs, minimum support prices and fiscal deficits have also impacted the prices of various commodities. Agricultural wage inflation is found to be a universal driver of food commodities inflation, as well as the aggregate food inflation. The contribution of agricultural wages has increased significantly in the post-NREGA era. Our analysis indicates limited role of fuel and international prices. Finally, results suggest significant pass-through effects from food to non-food and to the headline inflation.