Over the past decade, India has seen a prolonged period of high inflation, to a large extent driven by persistently-high food inflation. This paper investigates the demand and supply factors behind the contribution of relative food inflation to headline CPI inflation. It concludes that in the absence of a stronger food supply growth response, food inflation may exceed non-food inflation by 2½-3 percentage points per year. The sustainability of a long-term inflation target of 4 percent under India's recently-adopted flexible inflation targeting framework will depend on enhancing food supply, agricultural market-based pricing, and reducing price distortions. A well-designed cereal buffer stock liquidation policy could also help mitigate food inflation volatility
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|Size: ||5.6 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2016|
|ISBN: ||9781513518022 (DRM-EPUB)|
|Read Aloud: ||not allowed|