Food inflation trends point to new consumption patterns

The Reserve Bank of India (RBI) on Tuesday said the trend of food inflation was pointing at not only structural demand-supply mismatches in commodities comprises the essential consumption basket but also at changing consumption patterns.

The essential consumption basket comprised wheat, rice and pulses, while food inflation has been primarily held up by milk, vegetables, fruit and pulses — the high-protein and perishable food items.

“Notwithstanding some moderation, food price inflation has remained persistently elevated for over a year now, reflecting in part the structural demand-supply mismatches in several commodities,” RBI said in the second quarter review of monetary policy.

It said given the changing “consumption patterns” and the inadequate supply response, particularly for perishables and protein

sources, food price inflation was becoming “increasingly structural in nature”.

Analysts have repeatedly pointed that the structural imperfections of the existing agricultural and distribution system are going to increase, as consumption patterns change due to the transition of India from a developing to a middle-income society. Such a transition, which requires a country to have high growth rates and increases income levels and purchasing power, results in higher demand for high-calorie and high-protein food items.
 

FOOD INFLATION
Commodity	Average  inflation*
All food articles	19.37
Cereals	9.40
Rice	8.61
Pulses	21.14
Fruits and vegetables	12.55
Milk	26.56
*January-September (in %)

“The observation by RBI can be seen in a positive light because it clearly shows India is moving towards a high growth trajectory. It is, however, a matter of concern as far as inflation is concerned, because solution to structural mismatches is not short term. So, we will have to live with high inflation for now,” said Rupa Rege Nitsure , chief economist at Bank of Baroda.

The observation fuels concern, as structural problems do not have short-term solutions and cannot be directly controlled by monetary policy measures.

“The food-led inflation is typically difficult to address directly through monetary tightening, which will at best restrict the second-round effects of high food inflation spilling to other sectors through the wage-price spiral,” said D K Joshi, chief economist with ratings agency Crisil.

Others such as YES Bank Chief Economist Subhadha Rao remained optimistic on inflation, as well as food inflation moderating.

“It is true there has not been adequate supply and that has resulted in high inflation, but we had a good monsoon, which has significantly bettered the prospects for both rabi and kharif crops and will ease supply pressures, bringing down inflation,” said Rao