{
  "title": "Food Inflation in India: The Role for Monetary Policy",
  "publication": "IMF Working Papers, September 24, 2014",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/food-inflation-in-india-the-role-for-monetary-policy-42366",
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  "summary": "Indian food and fuel inflation has remained high for several years, and second-round effects on core inflation are estimated to be large.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Indian food and fuel inflation has remained high for several years, and second-round effects on core inflation are estimated to be large.\n- The paper estimates the size of second-round effects using an estimated reduced-form general equilibrium model of the Indian economy that incorporates pass-through from headline inflation to core inflation.\n- Results indicate that India's inflation is highly inertial and persistent.\n- Due to second-round effects, the gap between headline inflation and core inflation decreases by about three fourths within one year as core inflation catches up with headline inflation.\n- Large second-round effects stem from factors including the high share of food in household expenditure and the role of food inflation in informing inflation expectations and wage setting."
    },
    {
      "heading": "Model, Methodology, and Key Mechanisms",
      "content": "- Framework: Estimated reduced-form general equilibrium model of the Indian economy.\n- Mechanism emphasized: Pass-through from headline inflation (food and fuel) to core inflation via:\n  - Inflation expectations formation.\n  - Wage setting processes.\n  - High household expenditure share of food."
    },
    {
      "heading": "Key Findings and Statistics",
      "content": "- India's inflation is characterized as \"highly inertial and persistent.\"\n- The gap between headline inflation and core inflation narrows by about three fourths within one year due to second-round effects.\n- Large second-round effects are linked to:\n  - High share of food in household expenditure.\n  - Food inflation influencing inflation expectations.\n  - Food inflation affecting wage-setting behavior."
    },
    {
      "heading": "Policy Implications and Recommendations",
      "content": "- Monetary policy stance needs to remain tight for a considerable length of time to durably reduce the current high inflation.\n- Progress on structural reforms to raise potential growth is critical to reduce the burden on monetary policy."
    },
    {
      "heading": "Subject and Keywords (as stated in the source)",
      "content": "- Subjects: Commodity price shocks, Financial services, Foreign exchange, Inflation, Output gap, Prices, Production, Real exchange rates, Real interest rates\n- Keywords: Commodity price shocks, food inflation, forecasting, fuel inflation pass-through, Global, headline CPI inflation equation, India, Inflation, inflation dynamics, inflation expectation, interest rate, Monetary policy, Output gap, Real exchange rates, Real interest rates, WP\n\nIMF Working Paper — \"Food Inflation in India: The Role for Monetary Policy\", Rahul Anand, Ding Ding, Volodymyr Tulin (Working Paper No. 2014/178).\n\n---\n\n Content in this bundle\n\n- Wp14178\n  - Wp14178 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp14178 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/food-inflation-in-india-the-role-for-monetary-policy-42366"
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    "Authors: Rahul Anand, Ding Ding, Volodymyr Tulin",
    "Published: September 24, 2014",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484392096.001",
    "Indian food and fuel inflation has remained high for several years, and second-round effects on core inflation are estimated to be large.",
    "The paper estimates the size of second-round effects using an estimated reduced-form general equilibrium model of the Indian economy that incorporates pass-through from headline inflation to core inflation.",
    "Results indicate that India's inflation is highly inertial and persistent.",
    "Due to second-round effects, the gap between headline inflation and core inflation decreases by about three fourths within one year as core inflation catches up with headline inflation.",
    "Large second-round effects stem from factors including the high share of food in household expenditure and the role of food inflation in informing inflation expectations and wage setting.",
    "Framework: Estimated reduced-form general equilibrium model of the Indian economy.",
    "Mechanism emphasized: Pass-through from headline inflation (food and fuel) to core inflation via:",
    "India's inflation is characterized as \"highly inertial and persistent.\"",
    "The gap between headline inflation and core inflation narrows by about three fourths within one year due to second-round effects.",
    "Large second-round effects are linked to:",
    "Monetary policy stance needs to remain tight for a considerable length of time to durably reduce the current high inflation.",
    "Progress on structural reforms to raise potential growth is critical to reduce the burden on monetary policy.",
    "Subjects: Commodity price shocks, Financial services, Foreign exchange, Inflation, Output gap, Prices, Production, Real exchange rates, Real interest rates",
    "Keywords: Commodity price shocks, food inflation, forecasting, fuel inflation pass-through, Global, headline CPI inflation equation, India, Inflation, inflation dynamics, inflation expectation, interest rate, Monetary policy, Output gap, Real exchange rates, Real interest rates, WP",
    "**Wp14178**"
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