Syllabus Section: GS III (Economy)
Why in News?
- Between September 2021and April 2022, the consumer price of CURRENT FOOD INFLATION in India has risen from 0.68% to 8.38% year on year.
- UN Food and Agriculture Organization’s (FAO) food price index hitting new highs.
- It has reignited memories of the last great commodity inflation.
- From the mid-2000s till around 2012-13, briefly interrupted by the 2008-09 financial crisis.
- There has been no such major inflation in proteins. The FAO’s dairy and meat prices indices have gone up, but that has had more to do with the increased cost of feed ingredients
Difference between the two food inflationary episodes,
- The former was structural, demand-led inflation, driven by rising incomes
- The current food inflation, by contrast, is idiosyncratic and supply shock-driven.
- It is more “calorie” than “protein” price inflation, a term coined by the former Reserve Bank of India deputy governor Subir Gokarn.
- When global demand started returning with the gradual lifting of lockdowns, since August 2020 the FAO’s vegetable oil, cereal, and sugar price indices have soared 141%, 71%, and 50%, respectively.
- These exceed the 32%cumulative rise in the eat price index and 44%for dairy over the same period till April 2020.
- Draught in Ukraine and Curbs from Russia: Much of this inflation predated the war in Ukraine. Ukraine had a drought from 2020-to 21, while Russia, in December 2020, announced export curbs on wheat, corn, barley, rye, sunflower, and rapeseed for quelling domestic inflation.
Malaysia’s Palm Oil Plantation:
- Shortages of migrant workers in Malaysia’s oil palm plantations also helped in driving up global prices of edible oils and cereals.
- Ukraine War: The war worsened things by squeezing supplies from the two countries having a substantial share of the world’s wheat, corn, barley, and sunflower oil exports.
- Indonesia’s Restrictions on Palm Oil Shipments: to contain local inflation, and surging petroleum crude prices made it all the more attractive to divert sugar, corn, palm, and soyabean oil for biofuel production.
Impact on India
- The transmission of the higher global calorie inflation to prices in India has been limited largely to vegetable fats.
- The main reason for no imported inflation, in cereals and sugar, is because the country is a surplus producer of both.
- Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials.
- Higher costs of production can decrease the aggregate supply (the amount of total production) in the economy.
- Since the demand for goods hasn’t changed, the price increases from production are passed onto consumers creating cost-push inflation.
- The term demand-pull inflation usually describes a widespread phenomenon. That is when consumer demand outpaces the available supply of many types of consumer goods.
- And In demand-pull inflation sets in, forcing an overall increase in the cost of living.
- Demand-pull inflation is a tenet of Keynesian economics that describes the effects of an imbalance in aggregate supply and demand.
- When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. This is the most common cause of inflation.
Read more: UPSC CURRENT AFFAIRS
Source: Indian Express