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Does a Speculative Trade in Food Commodities Influence Food Price Inflation in India?

Author

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  • Soundararajan, Pushparaj
  • Suresh, Vidya

Abstract

Inflation, especially the food inflation has become a major economic challenge for the public policy in the contemporary India. Inflation pressure on food products is caused by interplay of multiple factors. The literature has identified various sources of food price inflation that included institutional factors, market conditions and institutional arrangements. The effect of institutional arrangements like speculative trade in commodity on the inflation is studied in many studies. Yet similar studies have not been attempted in the Indian context though the speculative trade is permitted in commodities from 2003 onwards. This paper analyses the relationship between wholesale food price index and trading on agricultural commodities in Multi-Commodity Exchange of India (MCX) using the monthly data between 2004 and 2014 from CSO and MCX respectively. The researchers have used time series analysis to draw conclusions from the study which indicates that there is no influence of trading on food commodity futures on wholesale price indices. However, the trading in MCX is influenced by fluctuations in wholesale price indices which may have implications for the future of food commodities prices in India.

Suggested Citation

  • Soundararajan, Pushparaj & Suresh, Vidya, 2014. "Does a Speculative Trade in Food Commodities Influence Food Price Inflation in India?," MPRA Paper 62521, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62521
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    References listed on IDEAS

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    1. Robles, Miguel & Torero, Maximo & von Braun, Joachim, 2009. "When speculation matters," Issue briefs 57, International Food Policy Research Institute (IFPRI).
    2. Jian Yang & R. Brian Balyeat & David J. Leatham, 2005. "Futures Trading Activity and Commodity Cash Price Volatility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(1‐2), pages 297-323, January.
    3. Baffes, John & Haniotis, Tassos, 2010. "Placing the 2006/08 commodity price boom into perspective," Policy Research Working Paper Series 5371, The World Bank.
    4. Robles, Miguel & Torero, Maximo & von Braun, Joachim, 2009. "When speculation matters," Issue Briefs 49999, CGIAR, International Food Policy Research Institute (IFPRI).
    5. Hernandez, Manuel A. & Robles, Miguel & Torero, Maximo, 2011. "Beyond the numbers: How urban households in Central America responded to the recent global crises," Issue briefs 67, International Food Policy Research Institute (IFPRI).
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    Keywords

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    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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