What is Driving India’s Food Inflation? A Survey of Recent Evidence

Abstract

In recent years there has been a great deal of interest in soaring food prices in India, as evidenced by wide discussions on causes of food inflation and its influence on near double-digit overall inflation in 2010 and 2011. This article examines the mix of drivers behind food price inflation through surveying recent evidence. Using this approach, this article demonstrates that the increase in demand for protein and vitamin-based high value food items has been the main driver of recent food inflation although supply shocks and institutional factors are important determinants of food inflation. These findings draw on the idea, as indicated by policy analysts, that finding proper policy response to rising food prices, mainly driven by increasing demand, will be a major challenge in India.