Tracking 'sticky' food prices important for MPC, says RBI paper

Food prices in India are showing varying degrees of price stickiness, according to a Reserve Bank of India (RBI) study, which suggested that paying attention to the sticky component of food inflation — besides core inflation — is important for the conduct of monetary policy.

 

The paper looked at the price setting behaviour in the food sector in India using a novel micro-level dataset.

 

The stickiness in food prices has relevance for policy in India as food accounts for about 46 per cent in overall consumer price index (CPI), the highest among inflation-targeting countries.

 

Therefore, the risk of policy errors from excluding sticky components in the food sector is larger in India as against advanced economies, where food has a low share in CPI (<10 per cent), the RBI study said.

 

The compiled dataset comprises 1.3 million price data points covering 45 food items on a weekly basis across 85 centres in the country for the period 2005-18.

 

This was one of the first attempts at compiling actual price data for estimating price stickiness in India. These products represent more than two-thirds of the items in the official CPI of food category representing each of the 10 product sub-groups, it added.