An Econometric Analysis of Food Inflation in India

Abstract

"In India, Food inflation seems to be persistent in recent years. The objective of this study was to determine the relationship between macroeconomic growth variables and food inflation in India. The period of study was from 1982-83 until 2019-20, the data on food wholesale price index, consumer price index for agricultural labour, interest rate and exchange rate were collected from various secondary sources; dummy variables of trade liberalisation and National Food Security Mission were utilised in this study. The collected data were analysed to check cointegration relationships among the variables by using the Johansen Cointegration Test (JCT) and Vector Error Correction Model (VECM). From 1982-83 to 2019-20, food inflation has been increasing at a rate of 7.47 per cent per annum. Among all the commodities eggs, meat and fish (148.9 %) were found to have a high percentage change in inflation over the last decade (2010 to 2020). The JCT results revealed a long-run cointegration relationship between variables, with three cointegration equations. The error correction model result suggested the existence of a short-run relationship between the variables and the previous year’s error term was corrected at a 12.6 per cent convergence speed within the year. The Chow test was used to estimate the presence of structural breaks, and the findings (Fcal>Ftab) revealed that there was a substantial difference between the coefficients of the three groups. The core idea of the study is that food inflation and other macroeconomic targets must be consistent."