Impact of Rising Food Prices on Economic Growth

GS PAPER 3

(INDIAN ECONOMY)

1. Overview of Inflation Data

February's Consumer Price Index (CPI) remained stable at 5.09%.
The Food Price Index accelerated to 8.66%, highlighting volatile food prices.

2. Concerns in Specific Food Categories

Vegetable prices surged by 30.3% year-on-year, with a significant acceleration from January.
Cereals maintained high inflation at 7.6%.

3. Potato-Onion-Tomato Trio

This widely consumed group saw substantial price increases.
Potato prices shifted from deflation to 12.4% inflation.
Onion and tomato prices surged by 22.1% and 42% respectively.

4. Government Measures and Impact

Supply-side measures like export bans had minimal effect.
Production forecasts indicate deficits in onion and potato output.
Water storage levels suggest potential challenges for summer crops, especially in the southern region.

5. Economic Implications

Rising food inflation hampers personal consumption, which accounts for 57% of GDP.
Rural areas are particularly affected, impacting inclusive growth.

6. Policymaker Concerns

High food inflation poses risks to economic growth.
Restraint on inflation is crucial for inclusive and sustained growth.

7. Outlook and Policy Challenges

Policymakers face challenges in controlling inflation amidst upcoming elections.
Ensuring inclusive growth requires concerted efforts to tackle food inflation.

Basic definitions:-

Consumer Price Index:- The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It's calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.
Deflation:-Deflation is an economic term that refers to a decrease in the general price level of goods and services. It's the opposite of inflation, which is an increase in the general price level. When deflation occurs, the purchasing power of currency rises over time. While this might seem like a good thing for consumers, deflation can actually signal a struggling economy.
Inflation:- Inflation is an economic term that refers to a general increase in prices and fall in the purchasing value of money. In other words, when inflation is occurring, the prices of goods and services are going up, so each unit of currency buys fewer goods and services. It's measured as an annual percentage increase.
food inflation:- Food inflation refers to the rise in the prices of food items over time. It's a specific subset of general inflation and can be influenced by a variety of factors. These can include changes in supply and demand, fluctuations in the cost of production, transportation, and distribution, or even global events like natural disasters or political instability. Food inflation can have a significant impact on the cost of living, particularly for lower-income households that spend a larger proportion of their income on food.

Prelims based question on inflation:-

In India which one of the following is responsible for maintaining price stability by controlling inflation?

a) Department of Consumer Affairs
b) Expenditure Management Commission
c) Financial Stability and Development Council
d) Reserve Bank of India