Food inflation is increase in Wholesale Price index (WPI) of essential products (according to food basket) relative to general inflation or the consumer price index (CPI).

Wholesale Price Index (WPI):

WPI represents the goods at a wholesale level. i.e. goods that are traded between organizations rather than consumers and sold in a bulk quantity. WPI is used as one of the important measure of Inflation in India.  Changes in WPI influences Fiscal and Monetary policy.

Consumer Price Index (CPI):

CPI measures change in a general prices of goods and services over a time in Retail level. In India, Reserve Bank of India (RBI) use CPI for inflation Purpose. It is one of the main Macroeconomic Indicator of inflation and it is used as tool by governments, central banks for Inflation Targeting.

Inflation Targeting:

Inflation Targeting is a Central Banks monetary policy strategy to maintain price at a specific level or within a range. One of the primary purpose to use Inflation Targeting for Price Stability. In India, RBI aim to contain CPI within 4 percent (+/-) 2 percent.

Current Scenario:

Recently, CPI Inflation rised sharply to 3.9%, near to the mark of RBI’s Medium-term target of 4% inflation targeting. This may give less room for RBI to go with easy monetary policy.