LPG Supply Disruptions and Food Inflation Transmission Across Indian Household Consumption Patterns

Abstract

This paper analyzes the channels of transmission through which any disturbances in the supply of liquefied petroleum gas (LPG) contribute to food inflation among various Indian consumption profiles of households from the year 2018 to 2023. Using the methodology of Vector Autoregression (VAR) approach and survey data from 8,542 households from urban and rural settings, we find statistical evidence of elasticities ranging from 0.68 to 0.82 between the shocks to LPG prices and inflation of food commodities. It is found that there exist heterogeneous effects on income quintiles such that inflationary impacts on low-income households are 2.3 times higher than that of upper-income households. Disturbances in the supply of 23 to 28 percent of LPG supply shortages have led to food inflation of 4.7 to 6.2 percent within a span of three months.