What Role Did Rising Demand Play in Driving Food Prices Up?

Abstract

Average food inflation in India during the period 2006-2013 was one of the highest among emerging market economies, and nearly double the inflation witnessed in India during the previous decade. An often cited hypothesis argues that the surge in food inflation during this period was driven by rising demand for high-value food products due to higher per capita income and diversification of Indian diets. In this paper we test the validity of this hypothesis by estimating the expenditure elasticity and then calculating the aggregate demand using data from household survey conducted by the National Sample Survey Organisation (NSSO). Our results show that in recent years estimated demand has exceeded supply of all major food products, barring fruits. Moreover, empirical estimates indicate that the demand supply gap is an important driver of rise in food prices, along with other factors such as minimum support prices, global prices, fiscal deficit and agricultural wages. JEL Classification: E31; E37 and Q11

The impact of macroeconomic factors on food price inflation: an evidence from India

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Quarterly Forecasting Model for India’s Economic Growth: Bayesian Vector Autoregression Approach

“…The dip lasted for a few months only as commodity prices recovered shortly. CPI inflation continued to increase driven by domestic factors such as high procurement prices and rising demand for high-value food products (Bajpai 2011, Bhattacharya andSen Gupta 2017). CPI inflation, despite dipping from the peak reached in late 2009 remained at elevated levels until late 2013, mainly due to high food prices even though WPI inflation dipped on account of moderation in commodity prices.…”