Imported commodity price fall offers relief for inflation outlook: Survey

The downward trend in the prices of commodities imported by India is a positive development for domestic inflation outlook, according to the Economic Survey for financial year 2024-25.

 

The World Bank's Commodity Markets Outlook projects commodity prices to decrease by 5.1 per cent in 2025 and 1.7 per cent in 2026.

 

The report highlights that the price declines are mainly driven by falling oil prices, though increases in natural gas prices and a stable outlook for metals and agricultural raw materials somewhat temper the overall decline.

 

Among precious metals, gold prices are expected to decrease, while silver prices are forecast to rise. Metal and mineral prices, particularly for iron ore and zinc, are also expected to fall.

 

Additionally, food inflation, as measured by the Consumer Food Price Index (CFPI), faced pressure during FY25 (April-December), primarily due to rising prices of vegetables and pulses, which together account for 8.42 per cent of the CPI basket.

 

Despite this, their combined contribution to overall inflation stood at 32.3 per cent for FY25 (April-December). When excluding these items, the average food inflation rate for the same period was 4.3 per cent, which is 4.1 per cent lower than the overall food inflation. Similarly, excluding vegetables and pulses, the average headline inflation would have been 3.2 per cent, 1.7 per cent lower than the actual headline inflation. 

 

Retail inflation, based on the consumer price index (CPI), eased to a four-month low of 5.22 per cent in December, down from 5.48 per cent in November, largely due to moderating food inflation. Food inflation slowed to 8.39 per cent in December, compared to 9 per cent the previous month.

 

The Economic Survey said that uneven monsoon-induced supply disruptions in certain regions, particularly affecting tomatoes and onions, contributed to price pressures, pushing up inflation in vegetables and overall food prices. When excluding the three most price-sensitive vegetables — tomato, onion, and potato (TOP) — from the CPI basket, the average food inflation rate for FY25 (April-December) was 6.5 per cent, 1.9 per cent lower than the overall food inflation.

 

Similarly, excluding TOP, the average headline inflation stood at 4.2 per cent, 0.7 per cent lower than the current headline inflation. Given that tomato and onion prices have been significant contributors to both food and headline inflation in recent months, the following section will delve into the factors driving price pressures in these vegetables.