Prices of pulses are known to swing capriciously, influencing what ordinary Indians put on their plates. But interestingly, these swings have followed a pattern. CRISIL observed in a 2017 report¹ that inflation in pulses, as measured by the wholesale price index (WPI), shot up every three years. There were four such cycles between 2005 and 2017 (see chart 1).

Within each cycle, price changes varied widely. In the last cycle, WPI inflation ranged from 46.2% at its peak in November 2015 to -35.5% at the trough in November 2017.

Delving deeper, we found the price cycles were triggered by negative (under production) and positive (excess production) supply shocks. This has to do with the fact that farmers base their sowing decisions on price expectations pegged to prices observed in the previous season. Low past prices would lead them to under-produce this season and vice versa, triggering a price cyclicality that moves with production over time much in the pattern of a ‘cobweb’. This cobweb theory explains how incorrect price signalling affects farmers’ sowing decisions, production and profitability.

Going by this trend, the next peak should have occurred in 2019. Well, it did, but the peak inflation was lower compared with past peaks, at 20% in July 2019. Since then, the volatility in inflation has reduced. However, inflation itself continues to average at a stubbornly high level of over 9%. This compares with average WPI inflation at 8.5% over 2005 to 2018.

What gives? Is 9% the ‘new normal’ for pulses inflation? How does lower volatility yet stubborn inflation augur for farmers and consumers? Read on for answers.