ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fresh Triggers amid the Pandemic

The Uncertain Trajectory of Food Inflation

Food inflation in India has traditionally been highly volatile due to an array of factors. With the COVID-19 pandemic, the food inflation trajectory is faced with multipronged challenges. Given its inadvertent impact on the common people, adopting an efficient food supply management policy is quintessential.

 

In the aftermath of the stringent lockdown in various phases, the country witnessed a gradual revival of commercial activities across all segments. Consequently, the retail inflation measured by consumer price index (CPI) portrayed a volatile swing. Breaching the Reserve Bank of India’s (RBI) upper tolerance band, 6% since December 2019, retail inflation became moderate between December 2020 and April 2021. As per the latest print by the Ministry of Statistics and Programme Implementation (MOSPI 2021a), it remained as high as 6.26% year-on-year (YoY), despite favourable base effect. It highlights an underlying price pressure in the economy. Delving deeper, the food items commanding about 45% weight in the CPI basket, consistently surpassed headline inflation since September 2019 and declined sharply in Dec­ember 2020. The deceleration was mainly on account of favourable base effect. Again, it rose to a seven-month high at 5.6% in June 2021 (MOSPI 2021a).

The CPI of the food basket at a disaggregated level reveals that the higher level of food inflation was mainly driven by a price surge in vegetables and proteins in the early months of the lockdown, while the prices inched up for pulses and edible oils later (MOSPI 2021b). Persisting supply-chain disruptions and selective regional restrictions delayed the abatement of price pressure in key vegetables. In addition, tighter demand–supply conditions in certain vegetables like onion and protein-based food items turned out to be the major driver in the wake of the pandemic. Higher retail fuel prices augmented the input cost in the form of higher transportation cost resulting in the cascading effect and exerted an upward pressure on the headline CPI trajectory. The outbreak of the COVID-19 pandemic points to an unusual trajectory of inflation, especially with respect to food items amid changing demand and supply conditions.

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Updated On : 25th Jul, 2021

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