The paper, titled “Retail Inflation Volatility in India: Sources, Determinants, and Implications”, finds that much of the fluctuation in headline inflation during the flexible inflation targeting period has stemmed from the vegetables sub-group — particularly the so-called “TOP” category of tomato, onion and potato.
“Much of the volatility in headline inflation emanates from the vegetables, driven by sharp and sporadic shocks to ‘Tomato–Onion–Potato’ (TOP) prices and amplified by spillovers from ‘ex-TOP’ vegetables,” the study said.
Food carries a weight of 45.9% in India’s Consumer Price Index (CPI), making overall inflation structurally sensitive to supply disruptions. However, the volatility is not evenly spread across food items. While milk and prepared meals have shown relatively stable price trends, vegetables — along with pulses, spices and edible oils — account for the largest price swings.
A decomposition of headline inflation variance between 2016 and 2025 shows that vegetables have increasingly dominated inflation volatility in recent years. In 2025–26 (April–March), up to August, more than 80% of the variation in headline inflation was attributed to vegetable prices alone.
The study points to distinct episodes of commodity-specific shocks. Onion prices surged in 2019–20, potato prices spiked in 2020–21, and tomato prices recorded repeated flare-ups in 2022–23, 2023–24 and 2024–25. These spikes were often linked to weather disruptions and supply bottlenecks.
Although the shocks were item-specific, their impact on headline inflation was amplified by covariance among vegetable prices. Price movements in one key vegetable often spilled over to others, magnifying overall vegetable inflation. The paper notes that volatility within the vegetables category has a statistically significant and positive effect on headline inflation, indicating that fluctuations in highly perishable and policy-sensitive items extend beyond their direct weight in the CPI basket.
The study also assessed the role of supply-side interventions such as buffer stock releases, export restrictions, import facilitation and stock limits. It found that these measures were effective in containing inflation volatility, not only easing immediate price pressures but also curbing spillover effects across commodities.
Overall, the paper concludes that headline inflation volatility has moderated under the inflation targeting framework compared with the pre-2016 period, despite repeated supply shocks. While tomato, onion and potato prices continue to witness episodic and sometimes sharp spikes, timely supply management and anchored inflation expectations have prevented these shocks from translating into persistent and broad-based inflation pressures.
