The recent history of inflation in India tells us that a part of the food inflation was not merely the result of supply shocks but also due to demand created by loose fiscal policy and the structural shift towards proteins. With the demand pressure that will arise from implementation of the national food security law, the continued structural shift towards proteins, and the practice of setting minimum support prices for foodgrains, food inflation is likely to remain high.
The pressure from food inflation (accounting for 46% of household consumption) also plays through the expectation channel. In other words, citizens, after experiencing high food inflation for the last few years, believe that variety of inflation is here to stay. Read More