Food Inflation

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A Presentation of Food Inflation. This is based on the time value of money.

A Presentation of Food Inflation. This is based on the time value of money.

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  • 1. Gurukrushna Patnaik AIMIT, Bangalore Food Inflation Price Hike In Food Commodities © Gurukrushna Patnaik
  • 2. Topics to Discuss • Price rise: An economist's view. • Grocery Bill. • Money Vs. Goods. • Positive effect of Hoarding. • Onion price rise – A critical issue. – Way back in 2010 and history – Situation at present – What is causing the price rise of onions in India? © Gurukrushna Patnaik
  • 3. Price rise: An economist's view • Rising prices are like a fire feeding on itself. • In turn, it brings down productivity leading to further inflation. • In any discussion of food price rise, we take drought, as a reason for it. © Gurukrushna Patnaik
  • 4. Tighten Your Purse Strings © Gurukrushna Patnaik
  • 5. Grocery Bill • High inflation has been pinching you for more than a year now. Now, the weakening rupee has made crude oil, fertilizers, medicines and iron ore, which India imports in large quantities, costlier. Though these items are not for your daily consumption, they impact your finances indirectly. • For instance, since India depends on imports for a large part of crude oil it consumes, a weak rupee will influence petrol and diesel prices. "Fuel being directly connected with the cost of transportation, prices of goods that are transported from one part of the country to another, such as food, are bound to rise. This will have a direct impact on the household budget. © Gurukrushna Patnaik
  • 6. 1 Year Crude Oil Prices © Gurukrushna Patnaik
  • 7. Money Vs. Goods • In economists' parlance, the main culprit happens to be inflation. • If money exceeds the value of commodities available in the market, the prices are bound to go up. • Inflation – Faulty planning with wrong order of priorities. – Inadequate production of goods in demand. © Gurukrushna Patnaik
  • 8. Cont.. • Inflationary situation is further aggravated by unimaginative import and export policies. • Improper imports and exports to domestic market, further increase in prices. © Gurukrushna Patnaik
  • 9. Positive effect of Hoarding • Monsoon is always the big issue. • Observing less production, hoarders became overactive, thereby leading to further price rise. • Hoarders strike a balance between the current price and future price. • In late monsoon or less production, food prices rise drastically. • It is the hoarders who actually help maintain some sort of an equilibrium. © Gurukrushna Patnaik
  • 10. A critical issue ONION PRICE RISE © Gurukrushna Patnaik
  • 11. Onion Price Rise • An onion, today being compared with diamonds. • India is the second largest producer of onion having 19% share of the global onion production. • The price of onion has shot up from Rs 20 per kg to Rs 70 per kg in some parts of the country. • 245% rise in the wholesale price of onion this year, has given an unpredicted turmoil in inflation. © Gurukrushna Patnaik
  • 12. Way Back in 2010 • India had seen a dramatic increase in onion price across all the markets in 2010. • The cause of price hike was the delay in reaching onions to the markets. • Unpredictable rainfall that led to the shortage in the production . • Political stress was created. • Hoarding and price increased by traders were also blamed for the same. © Gurukrushna Patnaik
  • 13. Situations at Present • Due to speculations, traders might have increased the price to earn profit. • Traders exploiting and taking advantage of the seasonal shortage in supplies. • The supply of onion falls to 3,000 quintals on Monday as compared to 6,000 quintals on September 6. © Gurukrushna Patnaik
  • 14. Cont.. • Wholesale price of onion increased per quintal from Rs 4,140 to Rs 5,300. • In Mumbai and Delhi the Wholesale Price increased by Rs 1,000 per quintal. © Gurukrushna Patnaik
  • 15. Cause for Price Rise • Hoarding – Trader-intermediaries who operate in groups encourage hoarding to keep the prices high. • Mismanagement – Improper supply chain and needs to be managed for a regular supply. • Inflation – Recent fuel price increase has pressurized the common man to by household things. – increasing the minimum export price (MEP) would help in lowering down the price of onion. © Gurukrushna Patnaik
  • 16. FAO food price index © Gurukrushna Patnaik
  • 17. © Gurukrushna Patnaik