Food inflation in india: Trends and determinations
Food Inflation has been persistently high in India during the past few years. Controlling food prices is one of the major tasks for the macroeconomic policy makers. The recent oil price hike and some natural calamities have increased food prices around the world. This study focuses on the identification of main determinants of food price inflation in India. Using the monthly data from January 2006 to December 2013, Johansen's cointegration technique has been applied to find out the long run relationships among food price inflation and its determinants like money supply, interest rate, exchange rate, crude oil, world food prices and rainfall. Empirical findings prove the long run relationships among food price inflation and its determinants. In the long run model, all determinants affect food inflation except the world food prices. Error correction model has also been used in order to comprehend the short run causality of food inflation determinants. The error correction term of error correction model turns out to be significant which further confirm the long run causality as well as the speed of convergence toward long run equilibrium, which has occurred due the short disturbance. In the short run only world food prices and crude oil coefficients and statistically significant at five percent level. Finally, the study suggests some policy implications such as reduced dependency of monsoon by improving the irrigation system, investment in agricultural inputs and shift of policy towards biofuel etc.