In examining the contentious issue of whether monetary policy should disregard increases in headline inflation resulting from spikes in food prices, which are beyond the control of interest rate adjustments, a research paper authored by Reserve Bank of India (RBI) deputy governor Michael Patra, along with Joice John and Asish Thomas George, reached the conclusion that there are instances where food inflation closely resembles core inflation.
The paper highlighted the significant impact of food inflation on headline , given its substantial share in the consumption basket. Furthermore, it emphasized that large and recurrent food price shocks have the potential not only to influence headline .
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Although the authors of the report are affiliated with the Reserve Bank of India (RBI), it’s important to note that their views do not necessarily reflect the official stance of the central bank.
Inflation Dynamics: Impact of Food Price Spikes on India’s Economic Landscape
The report observed that the confluence of food price spikes, exacerbated by the pandemic and the war in Ukraine, has significantly influenced headline inflation in India. Despite being perceived as temporary, these shocks have introduced both volatility and persistence to food inflation, averaging 6.7% from April 2022 to November 2023.Food has a weight of 45.9 per cent in the consumer price index (CPI). But its contribution to overall inflation has increased from 48 per cent in April 2022 to 67 per cent in November 2023.
While the authors are from the RBI, the views do not represent that of the central bank. The report observed that in the wake of the pandemic –exacerbated by the war in Ukraine – the intersecting incidence of food price spikes has had an overbearing influence on headline inflation in India. Widely regarded as transient, these shocks appear to have imparted volatility and persistence to food inflation which averaged 6.7 per cent during April 2022 to November 2023, it said.
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