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India has been facing high and persistent inflation in the last five year except in the interviewing year of 2009-10. High growth during this period facilitated a steep rise in incomes, which in turn pushed up the purchasing power of the population. The surge in demand triggered inflationary pressures, particularly in sectors where supply lagged behind. WPI inflation averaged 7.5 per cent in the five year period, which is way higher than the RBI’s comfort threshold of 5 per cent. One of the main drivers of inflation during this period has been the high food prices. Total food inflation (primary and manufacturing, herewith referred to as food inflation in the article) has averaged 10.3 per cent during the period under consideration. To be sure, in the current fiscal, even though overall WPI inflation has averaged 5.3 per cent in the first five months (April-August), food inflation has remained high at 9 per cent.
This persistence in flood inflation is a matter of concern for the policy makers as it affects the common man most profusely. In this article, we analyse the various aspects of food inflation- trying to answer the how’s and why’s coupled with the required policy prescription to tame the same.