Inflation may vary across space and commodities due to differences in region-specific or idiosyncratic factors such as climate, local culture, and the existing institutional set-up. These factors cause disaggregate, or regional, inflation, which in turn coalesces into aggregate inflation. Food inflation is a typical example. Spatial factors and rainfall are the most important determinants of disaggregate food inflation. Local inflation differs from aggregate inflation; the rate of inflation varies by city and commodity; and the determinants of rural and urban inflation are different. In addition to demand management policies, aggressive supply-side policies are the need of the hour.
