Taming Inflation

July 2022| Vol. II, Issue 1

Global inflation has been surging since the beginning of 2022, putting policymakers across economies in an uncomfortable situation. While India reported 7.01 percent CPI inflation in June 2022, it is much lower than a record 41-year high inflation of 9.1 percent in USA, 78.6 percent in Turkey, 11.9 percent in Brazil, 8.6 percent in Euro Zone and 9.4 percent in UK. Food inflation is rising even faster with Food and Agriculture Organization (FAO)’s Food Price Index (2014-16=100) increasing at 23.1 percent in June 2022 over June 2021. All this is happening at a time when economies are recovering from the COVID-19 induced recession. The geo-political scenario amid the Russia-Ukraine war has further escalated the inflation rates with fuel prices driving up the logistics and freight costs. Given this backdrop, this issue of AFTAB titled “Taming Inflation”, focuses on global and domestic inflation and commodity specific articles on wheat, edible oils and tomatoes.

The First article on “Global Inflation is Back” illustrates that around 90 percent of emerging market economies experienced food inflation greater than 5 percent between January 2022 to June 2022, with many registering double-digit rates of inflation. In 77 percent of the countries including India, food price inflation exceeded overall inflation. The second article on “Taming Inflation in India: Is Monetary Tightening Enough?” shows while WPI inflation was in double digits since Jan 2022 and recorded at 15.18 percent, CPI based retail inflation and food inflation in India was 7.01 percent and 7.75 percent, respectively in June 2022. The article argues whether monetary policy is the only solution in taming inflation in India. Both the articles suggest a combination of right monetary policy, prudent fiscal policies and liberal trade policies to control inflation.
The next three pieces look at inflation in specific commodities: wheat, edible oils and tomatoes. While wheat is the most important cereal crop in the world that is facing price surge both at the global and home front, inflation in edible oils is an imported one and in case of tomatoes, it was basically supply shortage due to climate vagaries and lesser acreage planted by farmers.

Article on “Wheat, Heat and Worries”, highlights government’s sudden ban of wheat exports in May 2022 in the face of heat waves that impacted wheat production and procurement in India. On the other hand, the article on “Trade Policy to Tackle Soaring Edible Oils Prices” critically evaluates the changes in import duty structure of edible oil in India and its impact on the domestic edible oils prices. The article suggests dovetailing of trade policy with pricing structure and increasing acreage under palm oil to help tackle soaring edible oil prices in the country. With 158.8 percent year on year inflation, tomatoes saw the highest inflation among all agricultural commodities in June 2022. It had a contribution of 8.9 percent in overall CPI. The last article on “Tomato Tremors” argues that inflation in tomatoes is inevitable due to price-production cob-web phenomenon, and advocates for promoting use of processed products of tomatoes such as tomato puree.

Taming food inflation is not an easy task. It requires medium to long term measures as illustrated in the five articles of this AF-TAB issue. Monetary and fiscal policies alone cannot curb inflationary pressures, it requires liberal trade policies, investments in agri-infrastructure and productivity enhancement through climate resilient technologies and innovative methods of cultivation. This would help stabilize inflation ensuring higher returns for farmers and affordable food for consumers