Food Inflation
Context:
- Food price pressures are a worry even in the midst of a decline in headline inflation.
The increase in costs:
- October saw a four-month low in India’s consumer price inflation, while wholesale prices fell 0.5% year over year for the seventh consecutive month.
- The pace of price increases in October, which is precisely the same as in June, is undoubtedly a relief for the third consecutive month from July’s 15-month high pace of almost 7.4%, even though it is only slightly lower than the 5% retail inflation in September.
- However, rural people continue to experience 5.1% greater inflation.
- The inflation rate for household services has fallen below 4% following several months above it, and core inflation—which does not include energy and food costs—has further decreased.
- Vegetable prices increased by more than 37% in July but only by 2.7% in October.
- Nonetheless, the overall increase in household food expenses remained stable at 6.6%, essentially identical from September, while the prices of other necessities increased more quickly or remained high.
- A portion of these, such as pulses (up 18.8%) and cereals (10.7%), could be linked to increases in the minimum support prices for crops along with concerns about the kharif output and the uncertain future of rabi.
- The wholesale price of pulses increased by 19.4%, indicating a higher likelihood of pass-through to retail pricing.
The group:
- The October news won’t have much of an impact on the Reserve Bank of India’s Monetary Policy Committee, which convenes early December for its next review.
- November and December might see average inflation of 5.95%, which is only a hair over the upper tolerance threshold set by the central bank, according to its 5.6% average inflation prediction for this quarter—down from 6.4% in the previous quarter.
- A 5.6% increase in prices would have resulted from excluding edible oils, whose 13.7% year-over-year price decline was a major factor in containing the Consumer Price Index.
- The base effects from the previous year, when the turmoil in Ukraine drove up the price of edible oil, will begin to fade in the upcoming months.
- Similarly, although October 2022’s 6.8% inflation rate contributed to a decrease in price increases last month, those base effects will undoubtedly fade this month.
- November of last year saw a slight decrease in retail inflation to 5.88%, with the food price index growing by just 4.7% from 7% the month before.
- Reductions in discretionary spending and reductions in essential consumption in line with industrial output patterns appear to have helped households adjust to the ongoing rise in living expenses. As a result, these households are unlikely to ease up on spending anytime soon.
Way Forward:
- The largest obstacle for policymakers to overcome is reluctant or budget-constrained consumers, as the economy’s resilience depends on its ability to withstand shocks from abroad.
