Watch out for “recurrent and overlapping” “food inflation, cautions RBI guv

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Inflation, especially “recurrent and overlapping” food inflation, will continue to haunt India, the Reserve Bank of India governor Shaktikanta Das has warned. In this situation, one of the primary tasks of the monetary policy experts is to remain eternally vigilant against its ugly head and to keep finetuning policy responses to tame it, the RBI governor said. Food prices have tormented the country in the past few months and were almost singularly responsible when the retail inflation rate zoomed to 7.44% in July riding high vegetable prices that was attributed to supply shocks. The figures for retail inflation and food inflation in July-September demonstrate the worth of Das’s statement. Retail inflation and food inflation rate in July were 7.44% and 11.51% while the figures for August were 6.83% and 9.94%. Food inflation climbed down to 6.56% in September, and it helped the retail inflation to settle at 5.02% in that month. However, it was still higher than 4% — the long-term goal of the RBI bosses. Das pointed out that inflation remains a concern though growth by and large is on expected lines. Almost all multi-lateral institutions have predicted India to record a GDP growth rate of around 6.3%, which puts it far ahead of all big economies in the world. Though economic slowdown in the developed world has made exports a bit wobbly, overall robust domestic demand is expected to be the key driver of the country’s economic engine in this financial year and the next. However, institutions such as the World Bank have raised the inflation forecast for the country for FY24 from an average of 5.2% to 5.9%. This was mainly due to erratic rains impacting the country’s kharif farm output. Over the past few months at the end of the customary briefing after the bimonthly monetary policy committee meetings, the RBI governor has repeatedly expressed concerns about inflation and how the vagaries of weather might impact it through crop shocks. It is now clear that kharif crop prices will guide the fight against inflation in the coming months. The first advance estimate of food output has forecast a drop in production compared against FY23 output figures for almost all crops. The drop is as follows – rice by 3.79%, maize by 5.03%, moong by 18.13%, urad by 14.77% and total foodgrains by 4.59%. Only tur output is expected to rise compared to last year. Groundnut, sugarcane, cotton, jute, soybean are all set to suffer a dip in production ranging from 5.97% (cotton) to 23.10% (soybean).

A recent analysis by rating agency CRISIL showed that the price of an average vegetarian thali is set to rise in November if higher prices of onion persist in the markets. Onion prices contribute about 10% of the cost of a veg thali. October did not find softening prices as the price of pulses rose 19% (year-on-year). The price of pulses contributes about 9% to the overall cost of a vegetarian thali. The famous CRISIL vegetarian thali comprises roti, vegetables such as onion, tomato and potato, rice, dal, curd, and salad. In a non-vegetarian thali, the dal is replaced by broiler chicken but the rest of the items remain constant. The prices are, however, on a raw material basis and are supposed to work as a proxy for food inflation figures. SilkRoute.ag, a global agritrade company which is based in Dubai thinks that among major kharif crops, cotton prices are expected to remain bearish due to weak demand and new crop arrivals. But the price of pulses is expected to be firm. The prices of moong rates are expected to rise after a small correction, while arhar dal prices are also expected to remain firm and steady. Chana and urad prices might rise a brief dip. The price of soybean is expected to be firm despite steady crop arrivals and could reach 26,000/quintal. Incidentally, the minimum support price of soybean is Rs 24,600/quintal for FY24. Wheat prices are also forecast to stay firm. The government is putting additional amounts in the market to keep prices under check in an election year. However, the sentiment remains bullish. Rice and maize prices, too, would rule firm. The onion prices are expected to drop with the arrival of new crop. Sandeep Sabharwal, CEO of Sohan Lal Commodity Management Group, mentioned in a note that an analysis of this year’s kharif crop production shows an increase in rice cultivation leading to a marginal improvement in rice output. But the production of pulses is apprehended to go down.