NEW DELHI: An improvement in rabi sowing, favourable weather conditions, and above normal monsoon rains are expected to soften food inflation sharply from the current levels in the next three-to-four months, say analysts.
But cereals and edible oils’ prices still remain a concern, and pose an upside risk to the inflation trajectory in the near-term, they say. The consumer food price index (CFPI) inflation, which has averaged 8.4% in April-December, may drop to around 6% in the fourth quarter of FY25; and as a result, CPI inflation may fall below 5% in Q4.
Analysts, however, don’t see inflation moderating any further from that level, which means, for the full year FY25, CPI inflation may be 4.8-5%, that is, 30-50 basis points higher than the Reserve Bank of India’s (RBI) estimate.
“Overall, the arrival of fresh harvests has led to a seasonal correction in food prices in recent months. We anticipate that headline inflation will fall below 5% by Q4 FY25, driven by a moderation in food inflation,” noted Rajani Sinha, chief economist, CareEdge Ratings.
However, so far, sowing of major oilseeds has declined by around 4% on year, which has raised concerns, she said. “Given the country’s reliance on edible oil imports, it will be important to closely monitor inflation in this category, especially considering high global edible oil prices and the recent increase in custom duty,” noted Sinha.
Suman Chowdhury, chief economist, Acuite Ratings & Research said: “Moreover, we don’t see a very sharp decline in food inflation below 6% over the next 3-4 months, given the steady cereal prices (wheat and rice).”
Retail inflation in wheat increased to 7.84% in December, 2024 from 2.31% at the beginning of year because of rise in minimum support price and low carry forward stock with private as well as the government agencies. While, inflation in rice stood at 8.19% in January, 2024, which declined to 7.44% in December, 2024.
According to an official note of the Department of Consumer Affairs, the sowing of rabi tomato, onion and potato as on date is higher than the corresponding period of the previous year.
Also, the agriculture ministry data shows that the total area sown for other rabi crops, such as wheat, pulses and oilseeds so far is 64 million hectares (mha) compared to 63.74 mha in the corresponding period of last year.
Officials say that the harvesting of rabi crops is expected to commence by the middle of March and crop prospects look robust so far. As of today, the modal retail prices of tomato, onion and potato have declined to Rs 20/kg, Rs 30/kg and Rs 20/kg respectively from an average retail prices of Rs 40/kg for each a month back, and officials expect them to moderate further.
Economists say the outlook on the rabi crop is currently favourable given the sowing progress which is slightly higher compared to that in the previous rabi season. “The reservoir levels are also significantly higher compared to that in last year, which will support a moderate growth in rabi output,” said Chowdhury.
Source: The Financial Express