Excerpt: Taming Indian Inflation

This book analyzes various facets of Indian inflation and their implications for the conduct of monetary policy. Indeed, several chapters are devoted to analyzing and managing food inflation, given the very important role of food inflation in driving overall inflation dynamics in India. Building on this analysis of inflation dynamics, several chapters discuss the role of monetary policy in taming inflation, which is important for the country given the economic and social costs of its high and persistent inflation. The book also focuses on the role of food inflation in lower income countries and emerging markets and finds that food price inflation is not only more volatile in these economies, but also higher than nonfood inflation on average. In this book, Rahul Anand, Naresh Kumar, and Volodymyr Tulin investigate the demand and supply factors behind the contribution of relative food inflation to general inflation. They find that India’s food inflation developments over the past decade appear to have largely reflected demand pressures, which have often outpaced supply of key food commodities. Their analysis suggests that in the absence of a stronger food supply growth response, food inflation may exceed nonfood inflation by 2 1/2–3 percentage points per year.