Food Inflation

Context

Price rise in vegetables had hit a 14-month high of 36% in September, lifting food inflation for consumers to 9.2%

About Food Inflation

• Definition: Refers to the increase in prices of food items, resulting in a decrease in purchasing power.
• When food inflation rises without a corresponding rise in income, people are able to buy less food or have to spend more for the same amount of food.
• Causes of  Inflation
  • Demand-Pull Inflation: Occurs when demand exceeds supply in the economy, leading consumers to pay higher prices for goods and services.
  • Cost-Push Inflation: Triggered by a rise in production costs (e.g., higher wages, raw material costs, supply chain disruptions), leading to increased prices.
  • Wage-Price Inflation: A feedback loop where higher wages lead to increased prices, and in turn, workers demand higher wages to cope with rising costs, continuing the cycles.

Indices Measuring Food Inflation in India

• Consumer Price Index (CPI):
  • Also called retail inflation, measures the increase in prices of goods/services typically purchased by households.
  • Types of CPI:
    • CPI for Industrial Workers (IW)
    • CPI for Agricultural Labourers (AL)
    • CPI for Rural Labourers (RL)
    • CPI for Urban Non-Manual Employees (UNME)
• Consumer Food Price Inflation (CFPI):
  • A component of CPI, monitors price changes of food items commonly consumed by households (e.g., cereals, vegetables, fruits, dairy).
  • Used by the Reserve Bank of India (RBI) under the CPI-Combined (CPI-C) framework.
• Wholesale Price Index (WPI)  :
  • Tracks price changes of goods sold in bulk to other businesses (excludes services).
  • Released by the Ministry of Commerce and Industry, monitors wholesale inflation in sectors like industries, manufacturing, and construction.
    • Key WPI components:
      • Primary Articles: 22.62% of WPI, divided into:
        • Food Articles: Cereals, Paddy, Wheat, Pulses, Vegetables, Fruits, Milk, Eggs, Meat, Fish.
        • Non-Food Articles: Oil Seeds, Minerals, Crude Petroleum.

Government Initiatives to Control Food Inflation

• Subsidized Commodities: Distribution of subsidized vegetables (onions, tomatoes) and release of wheat and sugar stocks to stabilize prices.
• Reduction in Import Duty: Government reduces import duties on pulses and incentivizes domestic pulse production to boost local availability.
• Export Bans: Ban on wheat exports since May 2022 and on broken rice exports since September 2022 to ensure domestic supply and lower prices.
• Ban on Stockpiling: Regulations limit wheat stocks to 3,000 tonnes for traders/millers/wholesalers/retail chains and 10 tonnes for smaller retailers to prevent hoarding.
• Operation Greens: Stabilizes the supply of Tomato, Onion, and Potato (TOP) crops throughout the year to reduce price volatility.

Source: TH

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Previous Year Question

Consider the following statements:

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. The Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

[UPSC Civil Service Exam – 2020 Prelims]

Select the correct answer using the codes given below.

(a) 1 and 2 only
(b) 2 and 3 only
(c) 3 only
(d) 1, 2 and 3

Answer: (a)

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