THE COST OF FOOD INFLATION

Economic policy making mainly focus on growth in national income, output and employment and stability in both balance of Payments and price level. In India both unemployment and increase in  price level pose major hurdles to balanced development. Increase in price level or inflation refers to the comprehensive increase in the prices of all goods and services resulting in decline in the value of money. It  has been observed that the increase in the production costs, labour and transportation costs, population increase,climate change including voltatility in monsoons, hoarding of food products and diversification from agricultural crops to commercial crops etc led to food inflation in the country. On the contrary food inflation in turn impact production costs including labour costs ,price of raw materials and other ancillary input costs required to  produce output. Further traders may even resort to speculation and hoard the product to create artificial scarcity. Hoarding of food grains expecting  higher prices may at times result in shortage of food grains leading to famines,poverty and malnutrition. The consumer price inflation (index) refers to the  average price level of all goods and services purchased by households. While whole sale price index measures the whole sale market prices,core inflation is estimated by avoiding volatile components of food and energy prices from both consumer price index and  wholesale price index.As per estimate inflation of food items account for nearly half of our consumption basket.

it has been observed that food inflation  peaked in 1999 for both wheat and rice,in 2000 2008 and 2012 for wheat, in 2008 and 2013 for rice.India's food inflation had a U shaped trend with average  food inflation during the period 2012-2024. reaching the Peak level of 14.72% in November 2013.However during the peak of global food price crisis India's cereal prices remained comparatively low.Montly inflation trends from July to September 2024 showed fluctuations. Headline inflation(CPI) moderated sharply from 5.1 in June to 3.5 in July 2024 .Food inflation also declined in the same period from 8.4% in June to 5.1% in July 2024- while food inflation moderated in cereals , fruits,  vegetables  pulses etc,On the contrary prices of meat,fish, egg etc increased.In August headline inflation (CPI) marginally increased to 3.7% from 3.6% in July .On the otherhand food inflation increased from 5.1 to 5.3 in August due to price increase happened in items of eggs, fruits vegetables and non alcoholic beverages. While core inflation moderated to 3.3% in August 2024 from 3.4% in July, rural inflation stood at 4.2% as against urban inflation at 3.1 in August 2024.

Food inflation  can be transitory or at times persistent depending on prevailing conditions. In September 2024 head line inflation(CPI) increased to 5.49 with corresponding inflation rate for rural 5.9 % and urban 5.05 %.In September food price inflation stood at peak level of 9.24 highest in nine months. Corresponding food inflation rate for rural area was 9.08% and urban 9.56 respectively. There has been much discussion on the seasonal  nature of food inflation. In September vegetable inflation was reported at 36% largely contributed by  tomato, onion and  potato prices which account for one third weight in their consumption basket. In September their prices were 42%,66% and 65% above 2023 levels.Cereals and pulses account for 7% and 10% inflation in September which account for one fourth of the food basket. Eventhough wholesale price index was just 1.82% wholesale food inflation jumped to 11.5 % ,with cereal inflation at 8% and pulses at 13%,rice and wheat 8%,and vegetable inflation was49%;With tomatoes 75%,onions 79% and potatoes 75%.According to Food and agricultural organization FAO rising trend in overall prices in recent months cereals particularly wheat are likely to exert price pressures including in vegetable oil. 

Persistent food inflation can derail country's food security and  increase inequality in food distribution. Moreover food inflation causes cost push inflation further aggravating inflationary pressures in the economy.  Globally between December 2023 and April 2024 Zimbabwe reported highest food inflation of 46% followed by Argentina 20%. The measures adopted by them to tackle the issue were similar like regular monitoring of food prices,enforcing fair pricing practices, agricultural diversification use of climate resilient technologies etc. Various measures are suggested by experts in India to tackle the issue of food inflation which include  achieving agricultural resilience utilising climate resistant crops, developing appropriate infrastructure for irrigation, post harvest technology for preservation and value addition.  Promoting use of appropriate technologies in agriculture offers tremendous scope and challenges.It may promote better Cold storage facilities for ware housing, precision farming and  more precision in weather forecast,transportation and marketing facilities etc. Along with minimum support prices (MSP) farmers must be trained in the use of available new technologies for harvesting, ware housing and processing ,storage and marketing of agro based products. In the absence of adequate capital they must be urged to form cooperatives.Similarly in case of lack of skill they must be provided with "foster management " in order to train them  to achieve managerial competence systematically.RBI Governor Shakti Kanta Das observed the need to maintain firm despite slight dip in nflation indicating no change in repo rate.The idea mooted by  the Economic Survey to remove food items from headline inflation is not at all rational and it would purely  be an act of window dressing. In short THE COST OF FOOD INFLATION IS REALLY HIGH AND SELF PERPETUATING!