RBI Bulletin analysis finds tomato, onion and potato prices account for a large share of fluctuations in headline retail inflation
Sharp and repeated fluctuations in the prices of tomatoes, onions and potatoes have been a major driver of volatility in India’s retail inflation, according to a study published in the February issue of the Reserve Bank of India Bulletin.
The paper, titled “Retail Inflation Volatility in India: Sources, Determinants, and Implications”, finds that a significant share of the variation in headline inflation during the flexible inflation targeting period has come from the vegetables category, particularly the “TOP” group, which is 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 Inflation Sensitivity
Food items account for 45.9 per cent of India’s Consumer Price Index (CPI), making overall inflation sensitive to supply-side disruptions. However, price movements are uneven across food categories. While milk and prepared meals have recorded relatively stable trends, vegetables, along with pulses, spices and edible oils, have contributed the most to fluctuations.
Data analysed in the study show that vegetables have increasingly influenced inflation volatility between 2016 and 2025. In the 2025–26 financial year (April–March), up to August, more than 80 per cent of the variation in headline inflation was attributed to vegetable prices.
Commodity Specific Price Shocks
The paper also identifies several instances of commodity-specific price shocks. Onion prices rose sharply in 2019–20, potato prices increased significantly in 2020–21, while tomatoes witnessed repeated spikes in 2022–23, 2023–24 and 2024–25. These movements were linked largely to weather-related disruptions and supply constraints.
Although the shocks were specific to certain commodities, their impact on headline inflation was amplified by the co-movement in vegetable prices. Changes in the price of one key vegetable often influenced others, pushing up overall vegetable inflation. The study notes that volatility within the vegetable segment has a statistically significant and positive effect on headline inflation, suggesting that fluctuations in these highly perishable items influence inflation beyond their direct weight in the CPI basket.
Impact Of Supply Side Measures
The paper also examines supply-side interventions such as the release of buffer stocks, export restrictions, import facilitation and stock limits. According to the study, these measures have helped contain inflation volatility by easing immediate price pressures and limiting spillover effects across commodities.
The study concludes that headline inflation volatility has moderated under the inflation targeting framework compared with the period before 2016. While tomato, onion and potato prices continue to see periodic spikes, timely supply management and anchored inflation expectations have helped prevent these shocks from translating into sustained and broad-based inflation pressures.
