Reasons for Inflation

headline inflation

Definition
A measurement of price iinflation that takes into account all types of inflation that an economy can experience. Unlike core inflation, headline inflation also counts changes in the price of food and energy. Because food and energy prices can rapidly increase while other types of inflation can remain low, headline inflation may not give an accurate picture of how an economy is behaving. Headline inflation is more useful for the typical household because it reflects changes in the cost of living, while core inflation is used by central banks because core inflation is lessvolatile and shows the effects of supply and demand on GDP better.

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The causes are both local and external and have been listed down
  1. Higher Food Prices worldwide as Food Futures are treated as an Asset Class by Investment Banks and their Clients
  2. MNREGA scheme which has led to labor shortages amongst rural workers and higher wages
  3. Lower agricultural growth in India compared to the much faster GDP growth
  4. Rising percentage of Middle Class in India which is demanding increasing quantities of better quality food products.With increasing incomes,people prefer to eat more meat which is more foodgrain intensive than a vegetarian diet
  5. High general Inflation is also a contributor to higher Food Prices
  6. Inefficiency in the Food Supply Chain.India wastes a huge amount of Food due to an antiquated supply structure which involves middlemen and mandis.These middlemen add no value and lead to higher retail prices for food besides indulging in hoarding practices.Foreign investment in the Retail area has been prevented by these vested interests.
  7. Dependence of Indian Agriculture on Monsoon Rains.India’s low investment in Irrigation has implied that a majority of the crop growing areas are dependent on seasonal rains.This was brought out starkly when...