The mismatch between food supply and demand could potentially increase the food prices, leading to disproportionately large impact on inflation expectation, according to Reserve Bank governor Y V Reddy.The recent rise in agriculture prices could potentially represent the beginning of a structural increase in prices.Impressive growth performance and consequent increase in food-demand of large populations, particularly in India and China, on an unprecedented scale in a short time span, generates huge demand pressures on food items, including edible oil, Reddy said in his speech at conference on 'Monetary Policy under Uncertainty' in the Argentinian capital Buenos Aires on Tuesday.The growing demand for animal proteins could further accentuate the demand for agricultural products. The supply-side is also affected by diversion of corn and oil-seeds to produce bio-fuel as energy-substitute. The tendencies towards global-warming are adding to uncertainties on the supply side, he said.The resultant mismatch between supply and demand could potentially have impact on prices of food articles. The consequent impact on inflation-perceptions and hence, on inflation expectations could be disproportionately large, perhaps even in the industrialised economies, the governor said.In the recent years, inflation rate in India has averaged around 5%. In recognition of India's evolving integration with the global economy and societal preferences, the resolve, going forward, is to condition the policy and expectations in the range of 4-4.5% in the medium term, Reddy said.The government, however, has taken measures for immediate supply-side management of food items, which will mitigate, to an extent, the concerns, Reddy said. The National Development Council, the highest policy-making body in India, met last week, and finalised a vigourous programme for enhancing agricultural productivity.
