Consumer Price Index (CPI) Inflation - Food

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Source: CMIE Economic Outlook, 1 Finance Research

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What does the Consumer Price Index - Food data represent?

This data measures the Year-on-Year (YoY) percentage change in the prices of food items (a total of 114 items), which comprises 39.06% of the combined Consumer Price Index (CPI) basket.
This data indicates the prices incurred by Indian consumers on food.
Cereals and products, Meat and fish, Eggs, Milk and products, Oils and fats, Fruits, Vegetables, Pulses and Products, Sugar and Confectionery, and Spices are the broad subgroups covered under Consumer Price Index - Food category.

This data specifically focuses on food items both in urban and rural regions, which can have direct implications for the economy.
Food inflation in the Consumer Price Index (CPI) is helpful to track changing food expenses on a monthly and annual basis.
Changing inflation in the food category impacts the cost of living and purchasing power of the people, which also indicates demand conditions and spending power in the economy.
Changes in the CPI for food can influence the demand for agricultural products.
The CPI data helps in understanding the income and expenditure patterns of households, particularly how much of their income is spent on food.
Fluctuations in the CPI can affect consumer behaviour, potentially leading to changes in consumption patterns, which in turn can impact agricultural production and marketing strategies.

Inflation is measured by the Year-on-Year (YoY) percentage change in the level of the index. An increase in the index (over the month or over the year) indicates inflation (rising prices), while a decrease in the index suggests deflation (falling prices). A slowdown in the inflation rate suggests disinflation.
Rising prices might indicate higher demand or lower supply (shortage of foodgrain), potentially signalling profitable conditions for farmers. However, consistent increases might indicate rising food prices, affecting household budgets and may reduce demand for the agri products.
Increase in price level may indicate shortage of foodgrain supply and higher demand, and vice versa.
Since 2016, RBI has adopted a flexible inflation targeting monetary policy framework which notifies 4% CPI inflation as the target, with an upper tolerance limit of 6% and a lower tolerance limit of 2%. Although there are no such targets for inflation in miscellaneous items, when interpreting rural CPI inflation in the miscellaneous category, one should consider how this category's inflation rate aligns with the RBI's overall inflation target.