Scenario of food inflation in India issues & policy implications - A study

Food inflation is a phenomenon where either demand or supply of food items alters while one of them remains constant. So when demand increases relative to supply, prices increase. Alternatively, when supply increases relative to demand, prices increase. Food price inflation not only threatens macroeconomic stability but also decreases the welfare levels of most households, especially the poorer ones, for whom food consumption constitutes a relatively large share of total expenditures. This paper analyzes the causes and effects of food price inflation in South Asia during the period 2007–08 and beyond; simulates the impact of food price increases on household welfare and the potential of adjustments in consumer and producer behaviour for mitigating the negative impact on welfare; and assesses the potential impact of regional trade liberalization on food prices