An analysis of major determinants of food inflation in India

The study has exclusively analyzed the major determinants of food inflation in India by using the monthly data from January 2006 to December 2013. Using Johansen's cointegration technique, it was shown that in long run, all major determinants of food inflation such as money supply, interest rate, exchange rate, crude oil and rainfall except world food prices affect food inflation significantly. The Error Correction Model was also used to comprehend the short run behavior of food inflation and its determinants. The error correction term turned out to be significant statistically which further confirmed the long run causality as well as the speed of convergence towards long run equilibrium. In short-run, only world food and crude oil prices affect the food inflation.