Highlights:

Across goods categories, inflation of food items has gone up or stayed high, while energy-related inflation has mostly come down more, compared with summer and fall 2022.

With falling energy prices in the global market, domestic inflation of many energy-related goods fell in 2022Q4 compared with 2022Q3 (Figure 1.10). Petrol for vehicles in India saw deflation during the period, while the inflation of motor fuel in Pakistan slowed. At the same time, inflation in certain food items went up. In Pakistan, the inflation of onions has reached over 100 percent since October 2022 and increased to over 500 percent in rural areas in January 2023 following drastic rises in global prices of onion. The prices of wheat and other cereals have also increased fast: in India, the average price of cereals has increased at a monthly rate of above 10 percent since September and reached 16 percent in January, while inflation of wheat reached 25 percent in January. In the aftermath of the floods, the inflation of wheat soared in Pakistan, reaching 78 percent in urban areas and over 100 percent in rural places. In addition, the price of meat in Bangladesh and Maldives has also increased faster than the average consumer inflation in recent months. One exception is Bhutan, where both imported and domestic food prices decelerated in the second half of 2022, as the country increased domestic food production.

Continued food export restrictions contribute to high global food price inflation, and
elevated food prices contribute to poverty and inequality. As a response to the war in Ukraine and the initial increase in food shortages around the world, many countries implemented food export restrictions (World Bank 2022a). Many of these restrictions have been extended to the end of 2023 and beyond (Table 1.1). These export restrictions threaten to further increase global food prices by restricting the free flow of food products. The brunt of the impact is borne by countries that import these heavily restricted food products, such as wheat for most South Asian countries. In Afghanistan, although food items are reportedly widely available thanks to good weather and harvests, two-thirds of Afghan households cannot afford basic food items due to a collapse of private income (World Bank 2023a). As a result, estimates by the World Food Programme (WFP) show that the share of the population with insufficient food has stayed above 90 percent in Afghanistan. High and persistent food inflation not only increases the cost of living for all households, but it hits the poor especially hard, as Box 1.1 shows.

Box 1.1 on page 14-18 highlights the distributional impact of high food and energy inflation in South Asia.