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

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  • Rahul Anand
  • Naresh Kumar
  • Volodymyr Tulin

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.

Suggested Citation

  • Rahul Anand & Naresh Kumar & Volodymyr Tulin, 2016. "Understanding India’s Food Inflation; The Role of Demand and Supply Factors," IMF Working Papers 16/2, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:16/2
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    1. repec:kap:compec:v:51:y:2018:i:1:d:10.1007_s10614-016-9630-z is not listed on IDEAS
    2. Chetan Ghate & Sargam Gupta & Debdulal Mallick, 2018. "Terms of Trade Shocks and Monetary Policy in India," Computational Economics, Springer;Society for Computational Economics, vol. 51(1), pages 75-121, January.
    3. Chandana Maitra & Sriram Shankar & D.S. Prasada Rao, 2016. "Income Poor or Calorie Poor? Who should get the Subsidy?," Discussion Papers Series 564, School of Economics, University of Queensland, Australia.
    4. Sajjid Chinoy & Pankaj Kumar & Prachi Mishra, 2016. "What is Responsible for India’s Sharp Disinflation?," IMF Working Papers 16/166, International Monetary Fund.
    5. Holtemöller, Oliver & Mallick, Sushanta, 2016. "Global food prices and monetary policy in an emerging market economy: The case of India," Journal of Asian Economics, Elsevier, vol. 46(C), pages 56-70.
    6. Akash Malhotra & Mayank Maloo, 2017. "Understanding food inflation in India: A Machine Learning approach," Papers 1701.08789, arXiv.org.

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