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Understanding Inflation in India

Author

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  • Ball, Laurence
  • Chari, Anusha
  • Mishra, Prachi

Abstract

This paper examines the behavior of quarterly inflation in India since 1994, both headline inflation and core inflation, as measured by the weighted median of price changes across industries. We explain core inflation with a Phillips curve in which the inflation rate depends on a slow-moving average of past inflation and on the deviation of output from its long-run trend. Headline inflation is more volatile than core: it fluctuates due to large changes in the relative prices of certain industries, which are largely but not exclusively industries that produce food and energy. There is some evidence that changes in headline inflation feed into expected inflation and future core inflation. Several aspects of India’s inflation process are similar to inflation in advanced economies in the 1970s and 1980s.

Suggested Citation

  • Ball, Laurence & Chari, Anusha & Mishra, Prachi, 2016. "Understanding Inflation in India," India Policy Forum, National Council of Applied Economic Research, vol. 12(1), pages 1-45.
    • Handle: RePEc:nca:ncaerj:v:12:y:2016:i:2016-1:p:1-45
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    File URL: https://www.ncaer.org/publication/india-policy-forum-2015-16
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    Cited by:

    1. Balakrishnan, Pulapre & Parameswaran, Mavannoor, 2025. "Inflation in India: Dynamics, distributional impact and policy implication," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 556-566.
    2. Ashima Goyal & Sritama Ray, 2022. "Exploring correlations between aggregate demand and supply shocks in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-004, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Pulapre Balakrishnan & M Parameswaran, 2019. "Modeling the Dynamics of Inflation in India," Working Papers 16, Ashoka University, Department of Economics.
    4. Santosh Kumar Dash, 2017. "Is Money Supply Exogenous? Evidence from India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(2), pages 167-195, May.
    5. Shovon Sengupta & Tanujit Chakraborty & Sunny Kumar Singh, 2024. "Forecasting CPI inflation under economic policy and geopolitical uncertainties," Post-Print hal-05056934, HAL.
    6. Pulapre Balakrishnan & M. Parameswaran, 2021. "Modelling Inflation in India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 555-581, September.
    7. Yadavindu Ajit & Taniya Ghosh, 2024. "A Historical perspective on India's inflation persistence: A Quantile analysis," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-015, Indira Gandhi Institute of Development Research, Mumbai, India.
    8. Shovon Sengupta & Bhanu Pratap & Amit Pawar, 2025. "Non-linear Phillips Curve for India: Evidence from Explainable Machine Learning," Papers 2504.05350, arXiv.org.
    9. Das, Abhiman & Lahiri, Kajal & Zhao, Yongchen, 2019. "Inflation expectations in India: Learning from household tendency surveys," International Journal of Forecasting, Elsevier, vol. 35(3), pages 980-993.
    10. Ashima Goyal & Abhishek Kumar, 2024. "What Drives Indian Inflation? Demand or Supply," India Studies in Business and Economics, in: Probal Pratap Ghosh & Rajbans Talwar & Sureshbabu Syamasundar Velagapudi (ed.), Practical Economic Analysis and Computation, pages 91-140, Springer.
    11. Bhavesh Salunkhe & Anuradha Patnaik, 2019. "Inflation Dynamics and Monetary Policy in India: A New Keynesian Phillips Curve Perspective," South Asian Journal of Macroeconomics and Public Finance, , vol. 8(2), pages 144-179, December.
    12. Taniya Ghosh & Sohini Sahu & Siddhartha Chattopadhyay, 2021. "Inflation expectations of households in India: Role of oil prices, economic policy uncertainty, and spillover of global financial uncertainty," Bulletin of Economic Research, Wiley Blackwell, vol. 73(2), pages 230-251, April.
    13. Pulapre Balakrishnan & M. Parameswaran, 2022. "What lowered inflation in India: monetary policy or commodity prices?," Indian Economic Review, Springer, vol. 57(1), pages 97-111, June.
    14. Pulapre Balakrishnan & M. Parameswaran, 2019. "Modeling the Dynamics of Inflation in India," Working Papers 1023, Ashoka University, Department of Economics.

    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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