Pulses prices rise inexorably, fruits & vegetables, milk may turn costlier too
The Reserve Bank of India (RBI) would rather “ensure the descent of (consumer price inflation) to the target of 4%” and prolong the monetary pivot towards lowering rates. The wait for a looser policy could become even longer, with supply-side information causing fresh worries about food prices. Heatwaves are the villain.
Many economists have already revised their projections for CPI inflation upward for Q1FY25, and expect the headline print to average 5-5.2% during the quarter. This is about 10-30 basis points (bps) higher than the RBI’s inflation forecast of 4.9% for the quarter.
Food inflation is seen posing a threat to headline CPI inflation in the near-term, and is unlikely to be contained anytime soon, as the predicted “above normal” temperature and heatwaves during April-June may cause prices of pulses, fruits, and vegetables and milk to spike further, say experts.
In his latest monetary policy statement, the RBI governor did acknowledge this. “As the uncertainties in food prices continue to pose challenges, the MPC remains vigilant to the upside risks to inflation that might derail the path of disinflation,” he said. But he added that since the harvesting of wheat crop is over in most parts of the country, the chances of heat-waves hitting the cereal’s output hard as in 2022 is remote.
However, prices of F&Vs and pulses could come under greater pressure. Prices of chana, which accounts for 50% of the country’s pulses output is already ruling 10% above the MSP because of prospects of lower output. The production of moong, a major pulse variety grown during summer months, could be adversely impacted. As such, pulses inflation in February was 18.9%, remaining in double digits since June, 2023.
“Largely, the risks to food inflation are from vegetables and fruits,” said Sakshi Gupta, principal economist, HDFC Bank. “There is evidence to suggest that a high temperature period pushes up vegetable prices sharply.” To be sure, a 10% month-on-month increase in vegetable prices leads to 60 bps increase in headline inflation.
While there are questions over how amenable food inflation is less-than-severe monetary tightening, the CPI where food has a weight of 40%, might remain above the trajectory seen by the RBI. As the governor said, “frequent and overlapping adverse climate shocks pose key upside risks to the outlook on international and domestic food prices.” Higher than normal temperature is likely to result in water shortage, which could hit cereals and vegetable yields.
The Indian Meteorological Department (IMD) last week predicted “above-normal” temperatures over most parts of the country during April-June, with the exception of parts of east and northeast India.
“Heatwaves tend to have a negative impact on production of key crops like wheat and can also lead to production losses for vegetables and other perishable items,” said Dhiraj Nim, economist, ANZ Banking Group. “As such, they become an upside inflation risk, especially given cereal and general food inflation is still quite high.”
Food inflation has been ruling above the 6% mark in the past eight months and is seen to remain so at least till July. This is also due to the low base effect during Q1. In April-June FY24, food inflation had averaged 3.78%. Cereals, pulses, milk and fruits carry a weight of 22% in the CPI basket, and accounts for about 55% of the Consumer Food Price Index (CFPI).
Lower pulses output is expected to put further pressure on the government’s to initiate more measures to improve supplies. Prolonged heat wave conditions are also likely to impact milk output, usually the production witnessing a decline during summer months.
“Heatwaves” are noticed when the maximum temperature of a station or location reaches at least 40 degree celsius or more for plains and at least 30 Celsius or more for hilly regions.
The phenomenon occurs mainly during March-June. Punjab, Haryana, Delhi, Uttar Pradesh, Bihar, Jharkhand, West Bengal, Odisha, Madhya Pradesh, Rajasthan, Gujarat, parts of Maharashtra, Karnataka, Andhra Pradesh and Telangana where heatwave occurs.
However, the met department has projected ‘normal to below normal’ maximum temperatures are likely over some parts of western Himalayan region, northern eastern states and north Odisha, in April-June.
The IMD has clarified that there is no heat wave warning for wheat producing states except Madhya Pradesh where 90% of the harvesting has been completed. IMD has said that even if temperatures rise above 35 degrees, there will be no impact on wheat crops in Punjab , Haryana and Uttar Pradesh, which means cereals inflation will be contained.
Source:financialexpress.com