Multiple factors doubled retail inflation rate in wheat, rice since April

The retail inflation rate in wheat almost doubled to 17.61 per cent in October from an already elevated 9.59 per cent in April. The case is almost the same with rice, the inflation rate in the price of which more than doubled to 10.21 per cent from almost four per cent in April.

The spike in the prices of these two cereals was diametrically opposite to the cooling of the overall inflation rate and of food inflation, both of which hit a three-month low, though they remained elevated.

In fact, the price increase in cereals more than doubled to over 12 per cent in October from about six per cent in April, chiefly due to the behaviour of wheat and rice, since the inflation rates in other cereals were negative during all these months, save October, when they stood at almost two per cent.

Cereals and their products have a near 10 per cent weight in the consumer price index (CPI).

Though this trend may disturb the budget of the poor, the government has already extended the free foodgrain scheme for 800 million people by three months till December 31. Under the scheme, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), five kg of wheat or rice is provided free to the beneficiaries of the National Food Security Act in addition to their monthly quota.

Besides, rice and wheat under the public distribution system (PDS) has not seen much inflation. For instance, rationed rice saw a price decline in April, taking the inflation rate below one per cent till September. There was absolutely no inflation in October.

In the case of PDS wheat, year-on-year prices continued to fall every month till October of 2022-23.

Those outside the PDS system, however, continued to bear the brunt of price rise. Besides, cereal products such as bread and biscuits do not fall under the PDS.

Bank of Baroda chief economist Madan Sabnavis said prices of cereals have ballooned out of proportion for various reasons.

He said the government's PMGKAY scheme has exhausted the excess wheat stock held with FCI, causing a shortage in the market.

Besides, the minimum support prices have been raised for rice and wheat again this year.

"Global prices have retreated for wheat. But in India they will remain elevated with new thresholds being set by the MSPs," he said.

Rice production is expected to be lower according to farm ministry estimates, Sabnavis said. What's more, PMGAY has been extended for three months and the market knows that the open market will have less rice, which has pushed prices further.

 ICRA chief economist Aditi Nayar said if the free food grain scheme is not extended beyond the ongoing quarter, market prices may see some upward movement. 

Going forward, cereal prices may remain elevated due to flash showers from the retreating southwest monsoon. This has caused extensive rain in most of North India over the past few days and could delay the harvest of standing paddy, bajra and jowar in Uttar Pradesh and Haryana, apart from causing yield losses.

But such late showers could also be a boon for early-sown Rabi crops such as mustard and wheat, due to good soil moisture, where high remunerative prices are also expected to play a positive role in sowing intentions.

"Healthy progress in Rabi sowing augurs well for the cereal inflation outlook, particularly in wheat," HSBC chief economist India Pranjul Bhandari said.

Nayar said wheat prices are likely to recede meaningfully only after the next harvest appears to be robust.  

On the other hand, she said rice output is expected to decline as per the first advance estimate for this year’s rabi crop which along with expectations of subsequent  crop damage from the unseasonal October rainfall are also likely to drive prices from moderating in the immediate term. 

Consumer price index inflation rate this financial year in % yoy

Grains	April	May	June	July	August	September	October
Rice	3.96	2.83	3.16	4.3	6.94	9.28	10.21
Wheat	9.59	9.45	10.06	11.73	15.72	17.41	17.64
Other cereals	-25.1	-28.24	-26.3	-6.87	-1.76	-1.37	1.99
Food	8.31	7.97	8.04	6.69	7.62	8.6	7.01
Overall	7.79	7.04	6.86	6.71	7	7.41	6.77