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Informist, Friday, Feb. 20, 2026

MUMBAI – Sharp and episodic spikes in tomato, onion, and potato prices are the principal drivers of volatility in headline retail inflation in India, with vegetable shocks accounting for the bulk of recent fluctuations, according to a report in the February RBI Bulletin. "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 paper said.

The paper, titled "Retail Inflation Volatility in India: Sources, Determinants, and Implications", finds that volatility in headline inflation during the flexible inflation targeting period has largely emanated from the vegetables sub-group, particularly the tomato-onion-potato category.

Food accounts for 45.9% of India's Consumer Price Index basket, making headline inflation structurally sensitive to supply-side disturbances. Within food, however, volatility is not broad-based. The study shows that vegetables, along with pulses, spices and oils, account for the largest swings, while items such as milk and prepared meals exhibit relatively stable price trends.

A decomposition of headline inflation variance for 2016–25 shows that vegetables have increasingly dominated inflation volatility in recent years. In 2025–26 (Apr-Mar), up to August, more than 80% of the variation in headline inflation was attributed to vegetable prices alone.

The study notes that specific episodes of price shocks in tomato, onion, potato were pivotal. Onion prices surged in 2019–20, potato prices spiked in 2020–21, and tomato prices saw repeated surges in 2022–23, 2023–24 and 2024–25, often linked to weather disruptions and supply bottlenecks. While these shocks were commodity-specific, their impact on headline inflation was magnified by covariance among vegetable prices, the paper said. "This suggests the presence of significant volatility spillovers among these items," the paper said, adding that price fluctuations in one vegetable may transmit to others, amplifying overall vegetable inflation.

Specifically, volatility within vegetables 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 examines the role of supply-side interventions by the government, including buffer stock releases, export restrictions, import facilitation and stock limits. "This implies that interventions were successful in containing the inflation volatility," the study said, noting that fiscal supply management not only muted immediate price pressures but also curtailed volatility spillovers.

Overall, the paper concludes that under the inflation targeting regime, headline inflation volatility has moderated compared with the pre-2016 period, even amid repeated supply shocks. While tomato, onion and potato price shocks remain episodic and sometimes severe, timely supply-side interventions and anchored expectations have prevented these shocks from translating into persistent and broad-based inflationary pressures, the paper said.  End

Reported by Kabir Sharma

Edited by Akul Nishant Akhoury

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