Structural inflation
Topic: Inflation and Index Numbers: CPI, WPI, IIP and the Deflator · NCERT: Beyond NCERT
Meaning
Structural inflation comes from supply bottlenecks that are built into the economy. These are common in developing countries. Examples include:
- low farm productivity
- poor storage and cold chains
- gaps in infrastructure
- market rigidities such as APMC limits and too many middlemen
Supply cannot keep up with demand, so prices keep rising. This is the Indian structuralist reading of persistent food inflation. Monetary tightening cannot fix it, because higher interest rates do not grow more pulses.
Example
Tomato, onion and potato (TOP) prices swing sharply in India because they are perishable and storage is thin. This keeps food inflation high no matter what the repo rate is.
Don't confuse with
- Supply shock: this is a sudden, temporary disruption, such as a monsoon failure. Structural inflation comes from long-lasting weaknesses in supply.
Related concepts
- Demand-pull inflation
- Output gap
- Cost-push inflation
- Supply shock
- Imported inflation
- Wage-price spiral
- Greedflation
- Inflation expectations
- Anchoring of inflation expectations