Food Inflation Disaggregated: Analyzing Causes, Effects

The latest reports indicate a significant surge in food inflation in India, reaching 8.7% in November 2023. This rise is attributed to various factors impacting the prices of vegetables, cereals, pulses, and spices, with edible oils seeing some deflation.

Causes of Food Inflation

1. Supply Chain Disruptions: Delays in the arrival of import cargos in essential food items have been one contributing factor.

2. Increased Consumer Demand: A robust demand in food and beverages has driven prices up.

3. Seasonal Variations: The transition period between the old and new harvest has traditionally seen price volatility.

4. Global Market Dynamics: The import duty of 40% on wheat, imposed in April 2019, affected the market, as well as the international pricing of commodities.

Effects of Food Inflation

1. Consumer Burden: Increased food prices lead to a higher cost of living, especially for lower-income families.

2. Profit Margin Compression: Retailers and traders may face reduced profit margins due to higher wholesale prices.

3. Wages and Employment: Persistent inflation may lead to demands for higher wages, affecting employment in food-related industries.

Policy Responses

1. Duty Cuts: The government is considering duty cuts on wheat and chana (chickpeas) to increase domestic supply and contain price hikes.

2. Free Import Policies: The duty-free import policy of yellow peas until March next year is an example of temporary relief measures.

3. Support to Farmers: Plans to purchase domestic supplies directly from farmers at favorable prices to sustain the agricultural sector.

The government is closely monitoring the situation, proposing measures to mitigate the effects, and planning to implement a full mechanized traceability system for better supply chain management. These actions aim to ensure stable food prices and protect both consumers and producers in the agricultural sector.