Food Inflation: Trends, Measurement & Challenges

Syllabus: Indian Economy (UPSC GS III)

Context

The Monetary Policy Committee (MPC), in April 2024, kept the repo rate unchanged at 6.5% for the 7th consecutive meeting. While headline inflation is expected to moderate due to a favourable base effect, food inflation continues to remain a major concern, especially with volatile prices of cereals, pulses, and vegetables.

Key Highlights

• Retail inflation eased to 5.1% in January–February 2024.
• Core inflation (excluding food & fuel) fell for nine consecutive months—lowest in several years.
• Fuel inflation stayed in deflation for 6 months.
• Food inflation, however, rose sharply in February 2024.
• RBI projects CPI inflation at 4.5% for 2024–25, assuming a normal monsoon.
• GDP growth forecast retained at 7% for FY 2024–25.

Food Inflation: Why It Is a Concern

• Food inflation touched 7.8% in February 2024.
• Persistent inflation in non-perishable items such as pulses and spices.
• Food inflation is highly volatile because it is heavily influenced by:
  • Weather shocks
  • Supply disruptions
  • Input costs (fuel, transport, fertilizers)
• High food prices risk spilling over to overall CPI, complicating RBI’s inflation-control mandate.

Challenges in Controlling Inflation

1. Geopolitical tensions (Ukraine conflict, Middle East crisis).
2. Global financial market volatility.
3. Geo-economic fragmentation affecting supply chains.
4. Adverse climate shocks (heatwaves, erratic monsoon).
5. Commodity price swings in global markets.

These factors reduce RBI’s room for monetary intervention.

How Food Inflation is Measured in India

1. Consumer Food Price Index (CFPI)

• Measures changes in retail prices of food items.
• Released monthly by MOSPI / CSO.
• Separate indices for rural, urban and combined.
• Current base year: 2012.
• Forms part of India’s Headline CPI.

2. WPI Food Index

• Introduced in 2017 under revised WPI (base year 2011–12).
• Tracks price changes of food items at the wholesale level.
• Compiled using:
  • Food Articles (Primary Articles)
  • Food Products (Manufactured Products)
• Historically a widely used index before CPI became the primary inflation metric.

3. Global Food Price Index (FAO)

• Released monthly by the Food and Agriculture Organization (FAO).
• Measures international price movements of 5 commodity groups:
  • Cereals
  • Vegetable Oils
  • Dairy
  • Meat
  • Sugar
• Helps compare India’s domestic trend with global markets.

Understanding the Base Effect

• Inflation is measured year-on-year.
• If the base-year inflation was high → current inflation looks lower, even if prices rise.
• If base-year inflation was low → even a mild rise leads to high inflation in comparison.
• This is why a “favourable base effect” can temporarily soften inflation numbers.

Conclusion

Food inflation in India remains sticky despite easing headline inflation. Weather shocks, global disruptions, and structural supply-chain challenges keep food prices volatile. Managing food inflation requires a combination of monetary vigilance, strong supply-chain reforms, climate-resilient agriculture, and efficient market interventions.