Measuring the contribution of mark-up shock in food inflation in India

Abstract

How do mark-up shocks affect food inflation in India? The rent seeking activities of agents in both wholesale and retail marketing of food, and the lack of a competitive food market and required infrastructure, often cause large positive shocks to mark-ups. This paper estimates the contribution of these mark-up shocks at both wholesale and retail level in food inflation. The study finds moderate but significant pass through of mark-up shocks in food inflation after controlling for other factors. Against the backdrop of building a competitive national market for food to promote greater competition and to stabilise large shocks to mark-ups, this paper makes a contribution towards understanding the extent to which stabilisation of mark-up shocks at both wholesale and retail level can lower wholesale and retail food inflation in the country.