Drivers and Impact of Food Inflation in India

Bhattacharya, Rudrani and Sen Gupta, Abhijit (2017): Drivers and Impact of Food Inflation in India. Published in: Macroeconomics and Finance in Emerging Market Economies , Vol. 2, No. 11 (May 2018): pp. 146-168.

Abstract

Average food inflation in India during 2006 to 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 behavior and determinants of food inflation over the recent past. Our main findings include that recent surge in food inflation in India is a result of various factors. On the cost side, 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 MGNREGA era. Fuel inflation has a moderate impact on food inflation and the effects vary across commodities. Our analysis indicates limited role of fuel and international prices, except for in tradeables. Finally, results suggest significant pass-through effects from food to non-food and to the headline inflation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Food inflation, India, Agricultural wage growth, SVAR, SVECM
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; F - International Economics > F6 - Economic Impacts of Globalization > F62 - Macroeconomic Impacts

References

Alexandratos, Nikos (2008), “Food Price Surges: Possible Causes, Past Experience and Longer Term Relevance”, Population and Development Review, 34 (4), pp. 663–697.

Anand, Rahul, Peiris, Shanaka, and Saxegaard, Magnus (2010), “An Estimated Model with Macrofinancial Linkages for India”, Working Paper WP/10/21, International Monetary Fund.

Aoki, Kosuke (2001), “Optimal Monetary Policy Responses to Relative Price Changes”, Journal of Monetary Economics, 48, pp. 55–80.

Bai, Jushan, and Perron, Pierre (1998), “Estimating and Testing Linear Models with Multiple Structural Changes”, Econometrica, 66 (1), pp. 47– 78.

Bandara, Jayatilleke S. (2013), “What is Driving India’s Food Inflation? A Survey of Recent Evidence”, South Asia Economic Journal, 14 (1), pp. 127–156.

Berg, Erlend, Bhattacharyya, Sambit, Durgam, Rajasekhar, and Ramachandra, Manjula (2012), “Can Rural Public Works Affect Agricultural Wages? Evidence from India”, CSAE Working Paper Series 2012-05, Centre for the Study of African Economies, University of Oxford.

Bhalla, Surjit S., Choudhary, Ankur, and Mohan, Nikhil (2011), “Indian Inflation: Populism, Politics and Procurement Prices”, Developing Trends: Oxus Research Report.

Bhattacharya, Rudrani, (2016), “How Does Supply Chain Distortion Affect Food Inflation in India?”, Working Paper 173, National Institute of Public Finance and Policy.

Bhattacharya, Rudrani, Rao, Narhari, and Sen Gupta, Abhijit (May, 2014), “Understanding Food Inflation in India”, ADB South Asia Working Paper Series No. 26, Asian Development Bank.

Bhattacharya, Rudrani and Sen Gupta, Abhijit, (2017), “What Role did Rising Demand Play in Driving Food Prices Up?”, South Asia Journal of Macroeconomics and Public Finance, Forthcoming.

Catao, Luis, and Chang, Roberto (2010), “World Food Prices and Monetary Policy”, Working Paper 16563, National Bureau of Economic Research.

Carrasco, B., Mukhopadhyay, H., (2012), “Food Price Escalation in South Asia–A Serious Growing Concern”, South Asia Working Paper Series 10, Asian Development Bank.

Chand, Ramesh (2010), “Understanding the Nature and Causes of Food Inflation”, Economic and Political Weekly, 45 (9), p. 10 to 13.

FAO (2008), “The State of Food and Agriculture – Biofuels: Prospects, Risks and Opportunities”, FAO report, Food and Agriculture Organization.

Gaiha, Raghav, and Kulkarni, Vani S. (2005), “Foodgrains Surpluses, Yields and Prices in India.”, Presented at Global Forum on Agriculture: Policy Coherence for Development, Organization for Economic Cooperation and Development, Paris, France

Ganguly, Kavery, and Gulati, Ashok (2013), “The Political Economy of Food Price Policy: the Case study of India”, WIDER Working Paper No. 2013/034, Helsinki.

Gilbert, Christopher L. (2010a), “How to Understand High Food Prices?”, Journal of Agricultural Economics, 61 (2), pp. 398–425.

Gilbert, Christopher L. (2010b), “Speculative Influences On Commodity Futures Prices 2006-2008”, UNCTAD Discussion Papers 197, United Nations Conference on Trade and Development.

Gokarn, Subir (2011), “The Price of Protein”, Macroeconomics and Finance in Emerging Market Economies, 4 (2), pp. 327–335.

Goyal, Aashima. and Baikar, Akash K. (2015). ‘Psychology or Cyclicality: Rural Wage and Inflation Dynamics in India’. Economic and Political Weekly, 50(23): 116- 125, June.

Gulati, Ashok, Jain, Surbhi, and Satija, Nidhi (2013), “Rising Farm Wages in India: The ‘Pull and ‘Push Factors”, Commission for Agricultural Costs and Prices Discussion Paper No. 5.

Gulati, Ashok, and Saini, Shweta (2013), “Taming Food Inflation in India”, Commission for Agricultural Costs and Prices Discussion Paper No. 4.

Imbert, Clement, and Papp, John (2012), “Equilibrium Distributional Impacts of Government Employment Programs: Evidence from India’s Employment Guarantee”, Mimeo.

Kumar, Rajiv, Vashisht, Pankaj, and Kalita, Gunajit (2010), “Food Inflation: Contingent and Structural Factors”, Economic and Political Weekly, 45 (10), pp. 16 – 19.

Mishra, Prachi, and Roy, Devesh (2012), “Explaining Inflation in India: The Role of Food Prices”, India Policy Forum, 8, pp. 139–224.

Mitchell, Donald (2008), “A Note on Rising Food Prices”, Policy Research Working Paper Series 4682, The World Bank.

NITI Aayog (2017) “Three Year Action Agenda: 2017-18 to 2019-20”, Government of India, New Delhi

Sonna, Thangzason, Joshi, Himanshu, Sebastian, Alice and Sharma, Upasana (2014), “Analytics of Food Inflation in India”, RBI Working Paper, October 2014, Reserve Bank of India.

Timmer, C. Peter (2008), “Causes of High Food Prices”, ADB Economics Working Paper 128, Asian Development Bank, Manila, Philippines.