Inflation & Price Indices
Inflation & Price Indices
Types of inflation, CPI and WPI construction, GDP deflator, the Flexible Inflation Targeting framework, MPC mechanics, monetary policy transmission, and inflation's impact on the Indian economy.
Key Dates
RBI adopted Flexible Inflation Targeting (FIT) framework — CPI target of 4% (+-2%)
Urjit Patel Committee recommended CPI-based inflation targeting for monetary policy
New CPI (Combined) series launched with base year 2012; WPI base year changed to 2011-12
Raghuram Rajan became RBI Governor; initiated shift towards CPI-based monetary policy framework
India experienced severe inflation (~28.6%) due to oil crisis — contributed to JP Movement
RBI raised repo rate from 4% to 6.5% to combat post-COVID inflation spike
Inflation reached ~13.9% — contributed to the balance of payments crisis and reforms
Global financial crisis + commodity price spike — India's WPI inflation reached 12.8%
COVID lockdown created supply-side inflation despite weak demand — CPI peaked at 7.6% (October)
MPC held repo rate at 6.5% through 2023; CPI averaged 5.4% — within tolerance band
RBI began easing cycle — repo rate cut from 6.5% to 6.25% (February) as CPI moderated to ~4.5%
Gadgil Committee recommended Priority Sector Lending to channel bank credit; indirectly affected monetary transmission
RBI introduced Liquidity Adjustment Facility (LAF) with repo and reverse repo as operating instruments
RBI moved to weighted average call rate (WACR) as the operating target; discontinued base rate in favour of MCLR
Meaning & Types of Inflation
Inflation is a sustained rise in the general price level, reducing money's purchasing power. Deflation is a sustained fall — dangerous because it raises real debt burdens and discourages spending (deflationary spiral, as Japan experienced 1991-2010). Disinflation is a falling rate of inflation (prices still rise, but slower). Stagflation combines stagnation (low growth, high unemployment) with inflation — the worst combination, seen globally in the 1970s oil crisis and partly in India during 2012-13. Reflation is deliberate policy-driven price increase to counter deflation. Types by rate: Creeping/Mild (<3%), Walking/Trotting (3–7%), Running (10–20%), Galloping (20–100%), Hyperinflation (>50%/month — e.g., Zimbabwe 2008 at 79.6 billion percent/month; Venezuela 2018; Weimar Germany 1923). India has generally stayed in the moderate 4–8% range post-reform, spiking during commodity shocks.
Causes of Inflation — Demand-Pull, Cost-Push, Structural
Demand-Pull: "too much money chasing too few goods." Occurs when aggregate demand exceeds aggregate supply at full employment. Drivers: increased government spending (deficit monetisation), easy monetary policy, rising exports, tax cuts, credit expansion. India saw demand-pull during 2006-08 when GDP grew 9%+ and credit grew 30%+. Cost-Push: rising production costs push prices up even without excess demand. Drivers: oil/commodity prices (India imports 85% of crude — the biggest external inflation driver), wage hikes (DA revisions), currency depreciation (costlier imports), supply chain disruptions (COVID, Russia-Ukraine war). India's food inflation is largely cost-push — monsoon failures, supply bottlenecks, intermediary markups. Structural: unique to developing economies — caused by supply-side bottlenecks: low agricultural productivity, poor cold chains, hoarding, mandi inefficiencies. Food inflation often exceeds 8–10% due to structural constraints — food has 45.9% weight in CPI, making headline inflation highly sensitive. Imported inflation: rising global commodity prices transmit through trade channels. India is vulnerable given import dependence on crude oil, edible oils, fertilisers, and industrial raw materials. Administered price inflation: government-set prices (petrol, diesel, LPG, electricity, railway fares) cause one-time jumps on revision.
Consumer Price Index (CPI) — India's Primary Inflation Measure
CPI measures price changes in a basket of consumer goods and services. India has multiple series: CPI (Combined) — used by RBI for inflation targeting, published monthly by NSO, base year 2012, 299 items across 8 groups covering rural and urban. CPI (IW) — used for DA calculation for government employees, published by Labour Bureau, base year 2016. CPI (AL) and CPI (RL) — used for MGNREGA wage fixation, published by Labour Bureau. CPI (Combined) weights: Food & Beverages 45.86%, Pan/Tobacco/Intoxicants 2.38%, Clothing & Footwear 6.53%, Housing 10.07%, Fuel & Light 6.84%, Miscellaneous 28.32% (education, health, transport, communication, recreation). Housing covers urban areas only. CPI beats WPI for monetary policy because: (1) captures retail prices consumers actually pay; (2) includes services (health, education, transport); (3) reflects cost of living better; (4) covers both rural and urban areas. Headline inflation = CPI (Combined) YoY change. Food inflation = Food & Beverages sub-index change. Core inflation = CPI excluding food and fuel (volatile items) — reflects underlying demand pressures. India's CPI (FY24): averaged 5.4%, moderated to ~4.5% by late 2024. RBI target: 4% +-2%.
Wholesale Price Index (WPI)
WPI measures price changes at the wholesale/producer level. Published by OEA (Office of Economic Adviser), Ministry of Commerce. Base year: 2011-12. Frequency: weekly (food articles) and monthly (all items). Three major groups: Primary Articles 22.62% (food 15.26%, non-food 3.46%, minerals 0.83%, crude petroleum 3.07%), Fuel & Power 13.15% (coal 1.62%, mineral oils 7.47%, electricity 3.85%), Manufactured Products 64.23% (food products 9.12%, textiles 4.88%, chemicals 6.47%, basic metals 8.83%, machinery 5.23%, transport equipment 4.32%). WPI has 697 items vs CPI's 299. WPI does NOT include services — its biggest limitation. WPI remains important for: (1) deflating GDP from nominal to real terms; (2) trade analysis (producer prices affect export competitiveness); (3) industrial analysis (factory-gate inflation); (4) contract escalation clauses. WPI-CPI divergence: FY21 saw WPI at -1.3% while CPI was 6.2% — wholesale deflation from weak demand did not pass through to retail due to supply chain margins and structural food inflation. In 2021-22 WPI spiked to 12.9% (30-year high) while CPI was 5.5% — producer pressures not fully reflected at retail. This divergence complicates policy: RBI targets CPI but businesses feel WPI input cost pressures.
GDP Deflator & Other Price Indices
GDP Deflator is the broadest price measure — covers all goods and services produced (not a fixed basket). GDP Deflator = (Nominal GDP / Real GDP) x 100. Advantages over CPI/WPI: (1) covers entire economy including services and investment goods; (2) weights update automatically as the economy evolves; (3) captures quality improvements. Disadvantages: published with a lag (quarterly, not monthly), unavailable for real-time policy. India's GDP deflator (FY24): ~4.1%. PPI (Producer Price Index) measures factory-gate prices including services — more comprehensive than WPI. India is developing a PPI to replace WPI; pilot exercises are complete but a comprehensive PPI is not yet operational. PPI would align India with international practice (US, EU, Japan all use PPI). HPI (House Price Index): RBI publishes quarterly from registration data across 50 cities — important for financial stability monitoring. India lacks a comprehensive Services Price Index — a significant gap given services contribute 54% of GDP. RBI's Services PMI (S&P Global) provides directional indication. Terms of Trade: ratio of export to import prices. Declining terms of trade (import prices rising faster) are inflationary. A $10/barrel increase in Brent crude adds ~0.3–0.4% to India's CPI.
Inflation Targeting Framework & MPC
The RBI Act was amended in 2016 (via Finance Act) to mandate Flexible Inflation Targeting (FIT). Target: CPI 4% +-2% (2–6%). If inflation breaches the tolerance band for 3 consecutive quarters, RBI must report to government: (1) reasons for failure, (2) remedial actions, (3) estimated return timeline. This failure clause was invoked for the first time in 2022 when CPI exceeded 6% for three straight quarters (Q1–Q3 FY23). RBI cited global commodity prices, Russia-Ukraine war, and supply chain disruptions. MPC has 6 members: 3 RBI (Governor as Chair, Deputy Governor for monetary policy, one Central Board nominee) + 3 external members (appointed by Central Government via search-cum-selection committee, 4-year non-renewable terms). Decisions by majority; Governor has casting vote on tie. MPC meets at least 4 times/year (currently 6 bi-monthly). Minutes published 14 days after — individual votes and statements disclosed, increasing transparency. FIT was renewed for 2021-26 with the same 4%+-2% target. Key achievement: inflation expectations have anchored around 4–5% — businesses and households factor this range into pricing/wage decisions, reducing inflation shock persistence.
Monetary Policy Instruments & Transmission
RBI instruments: (1) Repo Rate — rate at which RBI lends to banks against G-Secs. Primary policy rate. Current: 6.25% (February 2025). Higher repo → higher bank borrowing cost → higher lending rates → lower credit demand → lower aggregate demand → lower inflation. (2) Reverse Repo — fixed at 3.35% under SDF corridor. (3) SDF (Standing Deposit Facility) — LAF floor. Repo - 0.25%. Absorbs excess liquidity without collateral. (4) MSF (Marginal Standing Facility) — LAF ceiling. Repo + 0.25%. Banks borrow against excess SLR securities. (5) CRR — % of NDTL held with RBI. Currently 4%. No interest paid. Raising CRR reduces money supply. (6) SLR — % of NDTL in G-Secs. Currently 18%. Creates captive G-Sec demand. (7) OMOs — RBI buys/sells G-Secs to inject/absorb liquidity. (8) MSS — bonds issued to sterilise excess liquidity from forex intervention. Transmission improved after EBLR (External Benchmark Linked Lending Rate, October 2019): banks link retail loans (home, auto, MSME) to repo or T-bill rate, ensuring faster pass-through. Earlier MCLR/base rate systems were sticky. Transmission remains imperfect: average EBLR = repo + 2–3%; deposit rates and risk premiums also affect final lending rates.
Effects of Inflation on Economy
Debtors & Creditors: inflation benefits debtors (repay in cheaper money) and hurts creditors. Government is the largest debtor — inflation erodes real public debt. Fixed income groups: salaried employees and pensioners see real income fall. India compensates via DA indexed to CPI-IW, revised twice yearly. DA for central government: ~50% (January 2025). Private and informal workers have no such protection. Savings: negative real rates (nominal rate minus inflation) discourage saving. India saw negative real rates in 2020-21 (repo 4%, inflation 6%+). Small savings rates (PPF 7.1%, NSC 7.7%, SCSS 8.2%) are kept above inflation. Investment: moderate inflation (3–6%) encourages spending and raises nominal profits; high/uncertain inflation discourages long-term investment. Income distribution: inflation is regressive — a "tax on the poor." Lower-income households spend 70–80% on food (vs 30% for top quintile); food inflation is typically higher than non-food, so the poor face higher effective inflation. Government finances: inflation raises nominal tax revenue (bracket creep in IT, higher GST collections) but also raises DA, food subsidy, MGNREGA wages, and interest payments. Revenue gains typically slightly exceed expenditure increases, providing an implicit "inflation tax." External sector: persistent high inflation makes exports uncompetitive unless offset by currency depreciation. India's inflation differential with trading partners affects the REER.
Phillips Curve & NAIRU
The Phillips Curve describes an inverse short-run relationship between inflation and unemployment — tighter labour markets push wages and prices up. A.W. Phillips (1958) demonstrated this with UK data (1861-1957). Samuelson and Solow adapted it for the US in the 1960s — it became the basis for a perceived policy trade-off. Friedman-Phelps critique (1968): the trade-off is only short-run. The long-run Phillips Curve is vertical at NAIRU (Non-Accelerating Inflation Rate of Unemployment). Expectations-augmented Phillips Curve: if government tries to keep unemployment below NAIRU, it only generates accelerating inflation. Rational Expectations (Lucas, Sargent): even the short-run trade-off vanishes under rational expectations — only surprise inflation temporarily reduces unemployment. India's Phillips Curve evidence is mixed. The large informal sector (89% employment) means wage-price dynamics differ from developed economies. Food supply shocks cause inflation without tight labour markets. Urban formal sector shows some Phillips Curve relationship — tight IT/services markets in 2021-23 pushed up salaries. India's "flexible" targeting allows deviation from 4% to support growth within 2–6% — distinguishing it from strict targeting (ECB's 2%).
Quantity Theory of Money & Fisher Equation
QTM: MV = PY (M = money supply, V = velocity, P = price level, Y = real output). If V and Y are constant (classical assumption), changes in M cause proportional changes in P — "inflation is always and everywhere a monetary phenomenon" (Friedman). RBI monitors: M0 (reserve money = currency + bank deposits with RBI), M1 (M0 + demand deposits), M3 (M1 + time deposits, "broad money"). M3 growth averages 10–12% annually. When M3 growth significantly exceeds nominal GDP growth, inflationary pressures build. However, QTM assumptions are unrealistic: V declined during COVID (money hoarding), and Y is not fixed (developing economies have spare capacity). Therefore money supply increases can finance growth without proportional inflation — up to a point. Fisher Equation: Nominal Rate = Real Rate + Expected Inflation. India's real rate (FY24): 6.5% - 5.4% = +1.1% (positive, favourable for savers). During 2020-21: 4% - 6.2% = -2.2% (negative, penalised savers). Real rates affect: (1) savings decisions, (2) investment, (3) capital flows (higher real rates attract FPI), (4) exchange rate (real rate differential drives carry trade). Mundell-Tobin effect: inflation reduces real return on money, incentivising shift to capital goods — but in practice, high inflation creates uncertainty that discourages investment.
India's Inflation History — Key Episodes
(1) 1973-74 (25–28%): First oil shock (OPEC quadrupled prices) + drought-driven food spike. Contributed to JP Movement and Emergency (1975). Government imposed price controls and rationing. (2) 1979-80 (17–20%): Second oil shock (Iranian Revolution) + drought. Contributed to fiscal stress leading to 1991 crisis. (3) 1991 (13.9%): fiscal deficit at 8.4% of GDP, rupee devalued 18–19%, Gulf War oil spike. Triggered 1991 reforms. (4) 2008-10 (10–12% WPI): global commodity super-cycle, crude at $147/barrel, drought. RBI balanced inflation control with growth support during global crisis. (5) 2012-14 (9–11% CPI): persistent food inflation + 2013 rupee depreciation (20% from "taper tantrum"). Catalysed CPI-based inflation targeting; Rajan appointed RBI Governor (September 2013), Urjit Patel Committee reported (January 2014). (6) 2020-21 (6–7% CPI): COVID supply disruptions spiked vegetables and pulses; WPI turned negative (-1.3%) from demand collapse — unusual divergence. (7) 2022 (6.7% average CPI): Russia-Ukraine war pushed crude above $120, food/fertiliser/metal prices surged. RBI raised repo 250 bps in its fastest hiking cycle. MPC failure clause invoked. Current (2024-25): CPI moderating to 4–5%. Food inflation elevated (6–8%) but core well-controlled (~3.5%). RBI began easing.
Food Inflation — India's Persistent Challenge
Food and beverages hold 45.86% of CPI weight — the single largest determinant of headline inflation. Food inflation consistently exceeds overall CPI, averaging 6–8% annually. Drivers: (1) Monsoon dependence — 52% of net sown area is rain-fed. Deficient monsoon (<90% LPA) causes shortfalls in pulses, oilseeds, vegetables. El Nino years (2014-15, 2023-24) typically spike food prices. (2) Supply chain inefficiency — 5–16% fruits/vegetables lost to post-harvest waste; only 2.5% transported in cold chain (vs 70–80% in developed countries); mandi intermediaries add 30–40% to retail price. (3) Protein inflation — rising incomes boost demand for pulses, dairy, eggs, meat, fish faster than supply. India remains a net pulse importer (18–20 lakh tonnes/year). (4) Edible oil dependence — 55–60% imported (palm from Indonesia/Malaysia, sunflower from Ukraine/Russia). Global price spikes transmit directly. National Edible Oil Mission (Rs 11,040 crore) aims to boost domestic oilseed production, but import dependence persists for 5–10 years. (5) Government toolkit: buffer stocks (FCI for wheat/rice, NAFED/NCCF for pulses/onions), export bans (onion banned multiple times, wheat restricted since 2022), import duty reduction (zero on masur, reduced on sunflower oil), OMSS (below-market grain sales), Price Stabilisation Fund (Rs 2,500 crore for pulses, onions, potatoes). These provide short-term relief but do not address structural supply constraints.
Inflation Expectations & Anchoring
Inflation expectations drive self-fulfilling dynamics: if workers expect 8% inflation, they demand 8% wage rises; if firms expect 8%, they raise prices 8% — creating an inflation spiral. RBI surveys quarterly: (1) Household survey (6,000+ urban households, 18 cities) — current perception: ~8–9%, three-month ahead: ~8.5%, one-year: ~9%. Households consistently overestimate due to high-visibility items (food, fuel). (2) Business survey (IEBP) — more aligned with actual inflation (~5–6%). (3) Financial market expectations (break-even inflation from indexed vs nominal G-Secs) — ~4.5–5%, well-anchored near the RBI target. Anchoring expectations is FIT's primary goal — by committing to 4% and acting consistently, RBI convinces agents that inflation will stay low and stable, dampening wage-price spiral dynamics. Pre-FIT (before 2016), expectations were volatile at 10–12%. Post-FIT, business and market expectations have anchored closer to target. Household expectations remain elevated but are moderating — this partial anchoring is a significant achievement. RBI communication tools: bi-monthly policy statements, MPC minutes with individual votes, Governor's speeches, Financial Stability Reports, annual report, and expanded digital/social media outreach.
Global Inflation Trends & Comparison
Global inflation spiked in 2021-22 from COVID supply disruptions + massive fiscal/monetary stimulus + Russia-Ukraine commodity shock. Advanced economies: US CPI peaked at 9.1% (June 2022, 40-year high); Fed raised rates from 0–0.25% to 5.25–5.50%. ECB: -0.5% to 4.5%. UK hit 11.1%. By 2024: US ~3%, ECB area ~2.5%. EMs: most tightened pre-emptively. India (4% to 6.5%), Brazil (2% to 13.75%), South Africa (3.5% to 8.25%). Turkey cut rates despite 85% inflation before reversing to 50%. China faced near-deflation (0–1% CPI 2023-24) from property crisis. India's performance: average CPI 5.4% (FY24) was lower than most EMs; the spike was shorter-lived than in advanced economies. RBI's surprise 40-bps hike in May 2022 earned credit for quick containment. India's advantages: (1) large domestic food production base limits global food price transmission; (2) partially administered fuel prices — government absorbed some crude increase through excise cuts (Rs 8/litre November 2021, Rs 8+6/litre May 2022); (3) prudent COVID fiscal stimulus (3–4% of GDP vs 15–25% in advanced economies) reduced demand-side pressure. Challenge: India's crude oil sensitivity remains the biggest external risk — every $10/barrel increase adds ~0.3–0.4% to CPI and ~$15 billion to the import bill.
Deflation, Liquidity Trap & Unconventional Policy
Deflation is considered more dangerous than moderate inflation: (1) raises real debt burden, (2) consumers delay purchases expecting further falls, (3) firms cut production and employment — deflationary spiral, (4) nominal rates cannot fall below zero (ZLB), rendering monetary policy ineffective. Japan's "Lost Decades" (1991-2013): BOJ cut rates to zero and used QE but could not escape. Liquidity trap (Keynes): at near-zero rates, more money fails to stimulate lending or spending — "pushing on a string." Unconventional tools used globally: (1) QE — central bank buys long-term bonds (US Fed bought $9 trillion). (2) Negative rates — ECB (-0.5%), BOJ (-0.1%), SNB (-0.75%). (3) Forward guidance — shaping expectations by communicating the future rate path. (4) Yield curve control — BOJ targeted 10-year yield near 0%. India during COVID: RBI used TLTRO, special refinance windows, CRR exemptions for targeted sectors. India did not adopt negative rates or full QE but conducted Operation Twist (simultaneous long-term buy + short-term sell to flatten the yield curve). G-SAP (2021): structured OMO programme — Rs 1.2 lakh crore in G-Sec purchases with announced schedules (resembling mini-QE). Discontinued when inflation pressures emerged.
Inflation & Fiscal Policy — Deficit-Inflation Nexus
Fiscal deficit and inflation link through three channels. (1) Direct monetisation: RBI finances deficit by printing money. Common before 1997 via "ad hoc Treasury Bills." The 1997 agreement and FRBM Act 2003 prohibited RBI primary-market purchases. During COVID (2020-21), a "special window" under Section 5(1) effectively monetised part of the deficit. (2) Indirect monetisation: large government borrowing pushes up yields; RBI conducts OMOs to contain them, injecting liquidity that can be inflationary. (3) Demand channel: government spending adds to aggregate demand — inflationary near capacity, stimulative when spare capacity exists (COVID recession). FRBM Act 2003 (amended 2018): fiscal deficit target 3% of GDP for Centre (revised glide path targets 4.5% by FY25-26). Revenue deficit target: elimination by FY25-26. XV Finance Commission recommended 60% debt-to-GDP (Centre 40% + States 20%). FY25 fiscal deficit: 4.9%. Combined Centre + State: ~8.5–9%. Government debt: ~83% of GDP (above 60% recommendation). Interest payments: Rs 11.9 lakh crore (FY25) — largest single expenditure item, ~25% of revenue. Each 1% rate increase adds ~Rs 1 lakh crore annually. The fiscal-monetary tension: Finance Ministry wants low rates (cheaper borrowing); RBI wants rates consistent with inflation target. MPC independence is critical to preventing fiscal dominance.
Inflation & Exchange Rate
PPP theory: in the long run, exchange rates adjust to equalise price levels across countries. If India's inflation exceeds US inflation, the rupee should depreciate proportionally. REER (Real Effective Exchange Rate) adjusts for inflation differentials with trading partners. India's REER (40-currency basket): ~107 (2024) — ~7% above the base of 100, indicating slight overvaluation. Import channel: rupee depreciation makes imports costlier — 10% depreciation adds ~$70 billion to the $700 billion import bill. CPI pass-through: ~0.2–0.3 (10% depreciation adds 2–3% to inflation — partial due to administered fuel prices and food controls). Oil import channel: India imports 85% of crude (~$130–150 billion/year). If oil rises from $80 to $100 AND rupee depreciates 5%, the effective rupee oil price increase is ~30%. RBI's exchange rate management: does not target a specific rate but intervenes to reduce excessive volatility (managed float). Forex reserves: ~$640 billion (2024) — 4th largest globally, covering ~10 months of imports. RBI sold $50+ billion during 2022 when the rupee fell from Rs 74 to Rs 83/$. Impossible Trinity (Trilemma): a country cannot simultaneously maintain a fixed exchange rate, free capital flows, and independent monetary policy. India chose independent monetary policy + largely free capital flows, accepting exchange rate flexibility.
Inflation Indexation in India
DA (Dearness Allowance): indexed to CPI-IW, revised twice yearly (January and July). Current: ~50% of basic pay (January 2025). About 1.14 crore central government employees and pensioners benefit. When DA exceeds 50%, it is typically merged into basic pay. 7th Pay Commission: minimum basic Rs 18,000/month, fitment factor 2.57. Annual cost: Rs 1.02 lakh crore. MGNREGA wages: indexed to CPI-AL, revised annually. National average: Rs 267/day (ranges Rs 234–374 by state). MGNREGA wages have often lagged behind state minimum wages. Income tax brackets: revised periodically (not auto-indexed). New regime (FY24): no tax up to Rs 7 lakh. Bracket creep — nominal incomes rise with inflation, pushing taxpayers into higher brackets without real income gains — an implicit inflation tax. Government addresses this by periodically revising brackets (2023: new regime made default). Small savings rates: revised quarterly based on G-Sec yields. PPF: 7.1%, NSC: 7.7%, Sukanya Samriddhi: 8.2%, SCSS: 8.2% (2024). Generally provide positive real returns. RBI Floating Rate Savings Bonds: NSC rate + 0.35% (reset half-yearly) = 8.05%. Inflation-Indexed Bonds (IIBs): linked to CPI, limited issuance.
Inflation Management — Supply-Side Measures
While RBI handles demand-side inflation through monetary policy, the government deploys supply-side tools for food and commodity inflation. Buffer stocks: FCI maintains wheat and rice. Norms: ~38.93 MT total (rice 21.41 + wheat 17.52). Actual stocks often reach 60–80 MT at peak. OMSS: FCI sells below market to cool prices — used extensively for wheat in 2023-24. Trade policy: export restrictions (onion ban/restriction, wheat ban since May 2022, sugar limits, rice restrictions including broken rice ban and 20% parboiled duty); import facilitation (zero duty on pulses, reduced edible oil duty, duty-free onion imports). These are emergency measures. Stock limits: Essential Commodities Act 1955 empowers government to cap stocks on traders/processors. EC Act Amendment (2020) removed cereals, pulses, oilseeds from stock limits — but government retained power to reimpose during extraordinary circumstances (and frequently does). PSF (Price Stabilisation Fund): Rs 2,500 crore via NAFED and NCCF for market intervention in TOP crops and pulses — buy when prices are low (support farmers), sell when prices spike (protect consumers). PMGKAY: free grains during COVID absorbed food inflation impact for 80 crore beneficiaries. Long-term solutions: agricultural productivity improvement (PM-KISAN, micro-irrigation), cold chain development (PM Kisan SAMPADA), direct procurement reform (eNAM), and crop diversification from rice-wheat to pulses and oilseeds.
Relevant Exams
Inflation ranks among the most heavily tested topics. UPSC covers CPI vs WPI, the FIT framework, inflation types, MPC composition, and the Phillips Curve. Banking exams (IBPS, SBI) test definitions, current inflation data, repo rate, and monetary policy tools. SSC exams focus on factual recall — base years, publishing agencies, and inflation types. Stagflation, demand-pull vs cost-push, real vs nominal rates, FRBM targets, and inflation-exchange rate linkage appear across all exams.