NEW DELHI: A sharp decline in tomato prices may have caused the headline CPI (Consumer Price Index) inflation to plunge to 5.02% in September from 6.83% in August, but risks to food prices still persist, and experts see retail-food inflation staying above the 6%-mark in the second half of the current fiscal year.
An erratic monsoon and low reservoir levels are likely to have moderately adverse impact on yields of several crops, including paddy, pulses, oilseeds, and spices, which may keep inflationary pressures elevated in the near-term.
In the south-west monsoon period, which ended in September, rainfall has been particularly weak in east and north-east India, followed by south India. The total rainfall received in June to September was 94.4% of the bench mark – long-period average (LPA), or ‘below normal’.
An above-6% food inflation in H2 poses upside risk to Reserve Bank of India’s forecast of 5.4% for FY24, as prices of crude oil and other commodities, as witnessed in the September WPI data, have started to rise again which may put pressure on core CPI inflation.
According to the data released last week, the Consumer Food Price Index (CFPI) inflation fell to a three-month low of 6.56% in September on the back of a crash in tomato prices, but the inflation rate of cereals, spices and pulses remained in double digits. The CFPI comprises 39% of the Consumer Price Index.
The inflation of ‘cereals and products’ eased to 10.95% in September from 11.85% in August, but stayed in the double digit territory for the 12th consecutive month. The inflation of ‘pulses and products’ rose to 16.38% from 13.04%, and that of ‘spices’ remained largely flat at 23.06%. Collectively, these three subgroups constitute 15% of the CPI basket.
“The September inflation narrative was similar to August. The perishable food items are reversing their gains sharply, while non-perishables are showing signs of persistence,” said Madhavi Arora, lead economist, Emkay Global. “A sub 6% print for food inflation in H2 FY24 is still looking pretty difficult,” she said.
Kotak Mahindra Bank’s Chief Economist Upasna Bhardwaj sees food inflation averaging 6.9% in October-March. The impact of weak monsoon could be gauged through sequential price increases visible in the three-major food subgroups. The indices of cereals, pulses, and spices recorded month-on-month rise of 1.2%, 4.1%, and 1.8%, respectively, in September.
IDFC FIRST Bank Economist Gaura Sen Gupta said that 50% of the food and beverages subcomponents by weight saw 6%+ inflation in September.
Besides uneven distribution of monsoon, Sen Gupta highlighted that the key risk to food inflation outlook remains from low reservoir levels. As per the latest reservoir level bulletin, the live storage capacity of 150 reservoirs in the country is less than the corresponding period of last year and the 10-year average.
“Reservoir levels are still below last year’s level and their long-term average. Progress of wheat sowing in the upcoming Rabi season needs to be carefully monitored as cereal shocks exhibit far more persistence than other food items, staying in the system for 6-months or more, and even spilling over into core prices,” HSBC economists said in a report.
However, agricultural economist Ashok Gulati said, “when more than 800 million people are getting 5/kg free rice or wheat free every month, the government should not worry too much about cereal inflation.”
“For pulses and spices, in the short run, we need to import at zero duty while in the medium to long run, we need to invest in agri-research and development for raising their productivity,” he said.
Inflation in arhar variety of pulses reported a price rise of 37.34% in September. Decline in production and robust demand are the key factors that contributed to the rise in pulses inflation. To improve domestic supplies, the government has allowed imports of arhar, urad and masoor (lentil) varieties of pulses at zero duty till March 31, 2024.
On spices, Tamil Nadu-based trader Ankit Agarwal said that spices’ prices are expected to stay at the current levels till March-April of next year. The inflation in jeera (cumin seeds) rose sharply by 122.75% in September. Global and domestic supply constraints have pushed up jeera prices sharply since the beginning of the year.
The Spice Board of India in its first advance estimate pegged the turmeric production in the 2022-23 crop year (July-June) at 1.16 million tonnes (MT), 5% lower from 1.22 MT in 2021-2022.
However, the board has estimated about a 13-15% rise in cumin and coriander production in 2022-23 year to 0.62 MT and 0.84 MT respectively.
Source: The Financial Express