The IUP Journal of Applied Finance
Linkage Between Oil Price, Trade Openness Climate Variability and Food Inflation in India

Article Details
Pub. Date : July, 2023
Product Name : The IUP Journal of Applied Finance
Product Type : Article
Product Code : IJAF030723
Author Name : Pratap Kumar Jena, Sanjita Pagal and Minati Mallick
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 16



The paper examines the linkage between oil price, climate variability and Food Inflation (FI) in India using linear ARDL model for the period January 2001 to December 2021. The study uses monthly time series data on CPI (general index, food price index, Money Supply (M3)), oil price and trade openness (volume of Export+Import to % GDP) and temperature change retrieved from the online data base of Reserve Bank of India, FAOSTAT, MOSPI and Ministry of Petroleum and Natural Gas. Since the variables are in different units, natural logarithm values are used in model estimation. The study found that a positive correlation between FI and study variables. The ARDL Model coefficient values show that Money Supply (MS) positively impacts FI, whereas lag MS negatively affects FI. Oil price has a positive impact on FI and trade openness coefficient is positive but not significant. Temperature Change (TC) has a negative impact on FI. The ARDL bound test result indicates that there is cointegration between FI and the study variables. The ARDL-VEC coefficient values indicate that oil price and TC have significant causal relationship with FI. To tackle high FI, there is a need of government and policymakers' intervention for oil consumption diversification from crude oil to natural gas. The RBI should tighten the monetary policy and repo rate in order to lower FI.


Food Inflation (FI) is one of the major emerging issues among policymakers and academic researchers across the nations, and India is no exception. Studies on FI have been contradicting each other and are largely conclusive due to various determinants of inflation. Some studies observe that food inflation is caused by area under acreage, MSP, urban population, cost of cultivation, agricultural wages and fuel prices (Bhattacharya and Gupta, 2017; and Narula, 2019). In addition to that, a high demand for commodities with high protein concentration and nutrition, input cost and increase in income lead to high food inflation (Lone and Yadav, 2016). Another study found that the changing patterns in food demand are the main cause of food inflation (Agrawal and Kumarasamy, 2012).