This paper analyses the causes of the high inflation experienced in 12 food commodities between January 2008 and July 2010. It is shown that a majority of the commodities were subject to inflationary pressures due to domestic supply-side constraints. They include pulses, fruits, vegetables, meat, fish, spices, tea, coffee and sugar. Cost escalation was the primary reason for rising prices of milk and eggs. The high inflation of rice was caused by a complex interplay of factors.

In this paper we demonstrate that the high level of wheat procurement during 2008-09 and 2009-10 at a higher minimum support price was necessitated by the difficult circumstances that the government faced, characterised by a precarious buffer stock position from 2005 to 2008. Hence, blaming larger procurement and a higher msp alone for the soaring wheat prices between 2008 and 2010 is an oversimplification of the problem. The experience with wheat procurement in the recent past suggests that foodgrain procurement at a lower msp may not always be feasible.