The NDA alliance suddenly turned upside down; How was inflation caused?

will rule in the current Lok Sabha elections Narendra Modi If there is one economic counterbalance to the losses of the National Democratic Alliance (NDA), it is food inflation.
Annual inflation based on the Consumer Food Price Index (CPFI) averaged 0.03 per cent in the 12 months to May 2018 leading up to the 2019 Lok Sabha elections. But in the 12 months leading up to this year’s elections (May 2023-April 2024), retail food inflation averaged 7.88 percent.

The three staples of bread, pulses, and sabji (vegetables) have recorded double-digit inflation in the last 12 months.

This must have weighed heavily on the minds of ordinary voters. During this period, the average annual CFPI increase for cereals was 10.39 per cent, pulses 16.07 per cent and vegetables 18.33 per cent.

In contrast, retail sales during May 2018-April 2019 averaged just 1.98 percent for bread, minus 7.24 percent for pulses and minus 4.80 percent for subji.

The entire first term of the Modi government (Modi 1.0) was indeed marked by benign inflation. Overall Consumer Price Index (CPI) inflation averaged 4.39 percent and CFPI inflation averaged 3.38 percent. CFPI inflation exceeded CPI inflation in only 21 of the 60 months from May 2014 to April 2019.

The opposite is true of the Modi government’s second term (Modi 2.0) from May 2019 to April 2024. Headline CPI inflation averaged 5.69 percent, higher than the Reserve Bank of India’s medium-term target of 4 percent.

Average retail food inflation is even higher at 6.48 percent. And CFPI inflation has exceeded CPI inflation in 30 out of 58 months (comparative data for the two Covid months April and May 2020 is not available).

Low inflation during Modi 1.0 was primarily due to higher international prices of not only crude petroleum but also agricultural commodities. The United Nations’ widely monitored food price index fell from an average of 119.1 points in 2013-14 to 90 points by 2015-16.

At a base period value (taken as 100 for 2014-16) the weighted average index of world prices was 96.5 points even in 2019-20, after which it reached a record high of 133.2 points and 140.8. 2021-22 and 2022-23 points respectively.
While global food prices have eased in the wake of disruptions from Covid and the Russia-Ukraine war, an erratic monsoon has hit domestic agricultural production, courtesy of El Nino.

The Modi government has been taking various measures for the past two years to control food inflation. These include banning/restricting exports of wheat, non-basmati rice, sugar and onions, allowing import of major pulses and edible oils at zero or 5 percent duty and imposing stock limits on wheat and pulses for traders and retailers.

But these measures have not really helped curb food inflation, which remains elevated and unlike in 2019 may have contributed significantly to the NDA’s poll this time.

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