Statsguru: Rising food prices in India spoil the taste of platter

Following the monetary policy committee meeting last week, Reserve Bank of India (RBI) Governor Shaktikanta Das said that India’s inflation targeting could not ignore the “pressures” of food inflation.
 

Food prices and agriculture output faced disruptions in 2022-23 (FY23) and FY24 largely due to fallouts from climate change and unpredictable monsoon. As a result, the average food inflation in the country almost doubled from 3.8 per cent in FY22 to 6.6 per cent in FY23, before spiking to 7.5 per cent in FY24.
 

In June, food inflation was at its highest rate since December at 9.36 per cent, while the headline inflation was at 5.08 per cent. In fact, food inflation has exceeded the overall inflation print in 12 of the last 18 months (chart 1).

 

Unfavourable weather conditions have kept inflation in vegetables and pulses elevated. Vegetable inflation was at 29.3 per cent and pulses at 16.07 per cent in June. (chart 2).

 

Heatwaves during summer have considerably affected the output of the summer crops, leading to a spike in their prices. Among TOP (tomatoes, onions and potatoes), prices of potatoes and onions witnessed a surge year-on-year in July. The average all-India retail price of a Kg of onions (at Rs 43.7 per Kg) was 65.5 per cent higher and that of potatoes was 55 per cent higher in July this year compared to the same month last year. Tomatoes, however, were 40 per cent cheaper but those were still elevated at Rs 65.6 per kg in July. (chart 3).

A surge in vegetable prices was already playing a larger part in driving up food inflation in the country last financial year, according to data from the Economic Survey (chart 4).

 

And even though agricultural vulnerability to climate change has pushed up food prices worldwide, food inflation pinches Indian consumers harder than many countries. This can exacerbate food security concerns in a developing economy especially since Indians still spend a considerable share of their income on food (chart 5,6).

 

Some media reports suggest that a government panel is likely to reduce the weighting of food in the consumer price index based on updated spending patterns. Meanwhile, last month, the Economic Survey recommended excluding food in the inflation-targeting mechanism of the RBI since monetary policy could not influence supply-side issues.