Inflation and Agricultural Commodity Price Volatility in India: An Empirical Analysis
B. Sushmitha *
Department of Agricultural Economics, Professor Jayashankar Telangana Agricultural University, Hyderabad, Telangana, India.
*Author to whom correspondence should be addressed.
Abstract
Agricultural commodity prices occupy an unusually important position in India’s inflation process because food has a large household-budget share, production is exposed to weather and biological lags, and farm-to-retail supply chains remain heterogeneous in storage, transport, market integration and competitive structure. This critical narrative review synthesises empirical evidence on the relationship between agricultural commodity price volatility and inflation in India, with emphasis on the modern commodity-market era from 2003 to 10 July 2026 while retaining earlier evidence where conceptually necessary. The literature indicates that neither “food inflation” nor “commodity volatility” is a single process. Cereals have generally displayed stronger insulation from world-price volatility because procurement, public stocks and trade policy buffer domestic markets, whereas vegetables, pulses and oilseeds exhibit larger short-run variability linked to production shocks, seasonality, market arrivals, storage constraints and import dependence. Evidence on market power and vertical price transmission shows that retail and wholesale mark-ups can amplify shocks, especially in perishables, although the magnitude is commodity- and market-specific. Global food and oil prices matter, but pass-through is episodic and conditioned by domestic policy. Commodity futures often contribute to price discovery, yet studies disagree on whether spot or futures markets lead and on hedging effectiveness, cautioning against general claims that futures trading either causes or cures volatility. Monetary tightening can limit persistence and second-round effects, but recent quantile evidence suggests that direct control of urban food inflation through monetary policy is weak when shocks are supply-driven. The strongest policy implication is therefore a layered response: commodity-specific supply and logistics measures for first-round shocks, predictable trade and stock policies, better market integration and competition, and monetary policy focused on preventing propagation rather than suppressing relative-price adjustment. Major research gaps concern causal identification, spatially granular consumer prices, climate extremes, market concentration, policy endogeneity and real-time integration of wholesale, retail and futures data.
Keywords: Agricultural prices, food inflation, price volatility, market integration, commodity futures, monetary policy, India, price transmission