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India’s High Food Inflation

Facts for Prelims (FFP)

 

Source: IE

 Context: In 2023, while world food prices experienced a significant decline from their 2022 highs, India saw persistently high food inflation, reaching 9.5% in December 2023. This contrasts sharply with global deflation of -10.1% during the same period.

 

Factors contributing to the drop in global food prices include:

  1. An abundant supply of key crops: Bumper harvests in 2023, particularly of wheat, resulted in a surplus in the global market, contrasting with concerns over supply disruptions in 2022.
  2. Improved supply from Russia and Ukraine: Despite disruptions, both countries maintained wheat exports, easing supply anxieties.
  3. Lower demand for vegetable oils: Increased vegetable oil supplies and reduced use for biofuel production led to an approx. 32% drop in the UN’s Vegetable Price Index.
  4. Slowing demand: High inflation and economic recession fears reduced consumer demand, particularly in major food-importing regions, decreasing import demand and lowering global prices.

 

India’s high food inflation amid falling global food prices can be attributed to several factors:

  1. Limited transmission of global prices: While world food prices decreased, India’s remained elevated due to limited transmission of international prices to domestic markets, except for edible oils and pulses.
  2. Export bans and import duties: The Indian government imposed bans on certain food exports and provided import duty waivers, reducing global market influences on domestic prices.
  3. Domestic production challenges: Weather conditions affecting crop yields, particularly for cereals, pulses, and sugar, contributed to supply shortages and higher prices domestically.
  4. Low stock levels: Low stock levels for commodities like wheat and sugar exacerbated price pressures.

 

Food inflation in India is primarily calculated using the Consumer Price Index (CPI) for Food and Beverages, a key measure tracking price changes of a typical consumer basket. Food carries a weight of 45.9% in the CPI, but its contribution to overall inflation has risen from 48% in April 2022 to 67% in November 2023.

Recent data from the government’s Household Consumption Survey indicates a decline in food’s share of the consumption basket, dropping below 50% for rural consumers and 39% for urban consumers.