Heatwave scorches fields, sends veggie prices soaring, to push up inflation

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If you thought the current heatwave in the country would only leave you sweating, you are wrong. It would, in all likelihood, also singe your pocket. The intensifying heatwave conditions could affect farm produce and raise inflation by 30-50 basis points, The Economic Times reported economists warning.

The most vulnerable to the heat are vegetables. The prices of different vegetables are already rising and would either remain at higher levels, or worse, rise further, till at least June. If the rains set in by June, the price rise may be reined in.

The dramatic price rise of some items such as tomato last year made headlines, even triggering an unprecedented crime of ‘truckjacking’ in Karnataka just to get hold of its load of tomatoes.

“The impact of the heatwave will be most apparent in perishable food varieties, especially vegetables, which is one of the most volatile parts of the inflation basket and has consistently punched above its weight in FY24,” Radhika Rao, executive director and senior economist, DBS Group Research told the newspaper. She thought that the impact on inflation could be 30-50 bps if the sequential pace of increase is 50-100% higher than the seasonal increase, which usually happens around this time.

Chief economist, CareEdge, Rajani Sinha said, “The prevailing heatwave is anticipated to adversely affect rural farm income, food inflation, and general health conditions.”

Since the summer of 2023, Reserve Bank of India governor Shaktikanta Das has been regularly reminding about the adverse impact of El Nino on price rise and, in turn, on monetary policy.

While food inflation has tormented the economy in the past several months, it is still high preventing a decline of the retail CPI-based inflation. Though retail inflation inched down to 4.9% in March – a 10-month low – food inflation was at 8.5%. Among the food items, vegetable inflation at 28% was the primary culprit to jack up food inflation figures.

Vegetable inflation has ruled in double digits for five months on the trot. Economists say that vegetable inflation could hover around 28% in the April-June quarter as well. Keeping company with vegetables in the elevated zones is the price of fruits, caution experts. “This phenomenon will keep the prices of perishables like vegetables and fruits high, impacting their yield and shelf life and thereby leading to lower supply,” Sinha said.

Fruits and vegetables enjoy a weight of 8.9% in the overall inflation basket.

While the direct impact of heat on farm output is easy to comprehend, logistical issues also crop up during extreme heat, pointed out chief economist, Piramal Group, Debopam Chaudhuri.

Worse, the heatwave might also impact the kharif season. If the rains are below normal, it can certainly affect the output. The water levels in major reservoirs in the country are alarmingly dipping and a less than normal monsoon would add to the woes.