Food inflation refers to the condition where there exists an increase in the wholesale price index of essential food item ( defined as food basket) relative to the general inflation of the consumer price index.
What’s the problem with food inflation?
A fall in supply during high demand pushes up prices. A major part of the food production and agriculture depends on monsoon season. Thus, good monsoon has a direct bearing on inflation. The unseasonal rains severely impact food production and agriculture which leads to increase in prices of food products.
Factors affecting food inflation in India
- Agricultural output
India’s main source of food production is domestic agriculture production. Due to the growth of other segments at a faster rate, there is fall in the agriculture’s share in the overall GDP. However, India is one of the main exporters of certain commodities and has huge demand. The high demand from overseas also tends to push up domestic prices.
Food production and agriculture are totally dependent on monsoon and thus, good monsoon has a direct bearing on inflation. According to the data, the impact of monsoon has reduced but despite this, food inflation did not fall.
- International food prices
India mainly depends on domestic agricultural production. But many food products are imported in India and thus, international food prices also affect India’s food inflation. In the last few years, due to the rise of international food prices and the rupee depreciating, it has fuelled domestic food inflation.
- Household consumption
The rise in income level leads to an increase in household expenditure. Demand on food product increases in India as the Indian households spend more food products. According to the survey, at the time when supply is lower, high demand can drive inflation higher.
- Input prices
In today’s world, agricultural production is costlier due to a rise in the cost of fuel, fertilizers, labour, etc. Real wages increase has been seen in both agricultural and non- agricultural wages in rural areas. This increase is often passed onto the customers by way of price hikes.
Solutions to food inflation
Food inflation has become the major problem for the Indian economy and there is an urgent need for some effective solution to reduce this problem. Some solutions can be limiting the commodities that are exported which are vital for the Indian people, producing food products in our home country and improving the storage facilities for perishable goods. Necessary steps should be taken by the government to reduce the problem of food inflation.