Impact of Industrial Concentration on Core CPI Inflation

This technical report investigates the relationship between industrial concentration and core Consumer Price Index (CPI) inflation in India. It discusses findings from a recent research article by Professor Viral Acharya, which suggests that the persistence of core inflation may be linked to the pricing power of firms in concentrated industrial sectors. The report analyzes various sectors, including Telecom, FMCG, and Passenger Vehicles, to assess the market structures and their influence on pricing. It presents the CPI Industrial Concentration Index from January 2015 to March 2023, revealing that the concentration index has been consistently lower than core CPI. The analysis indicates that price increases during the pandemic were primarily due to supply chain disruptions rather than increased pricing power. Additionally, the report highlights the impact of food CPI on general CPI, noting that a rise in food prices correlates with an increase in general inflation. The findings challenge the notion that industrial concentration dictates pricing capacity in India, emphasizing the coexistence of large and small players in the market.