Inflation pressures may linger, but food prices to cool soon: Finanace Ministry
India’s inflation woes are not over yet but food price spikes may be “transitory”, the Finance Ministry said on August 22, attributing the latest spike in headline inflation to global uncertainties triggered by the termination of the Black Sea Grain Initiative that has upset wheat and edible oil supplies, as well as disruptions in domestic farm output.
The impact of the global disruptions was “clearly evident” in the sharp surge in the retail inflation pace in July to a 15-month high of 7.44%, the Ministry said, noting that the 11.5% food inflation rate was “perhaps the third highest” since the current Consumer Price Index (CPI) series began in 2014. Core inflation, which excludes energy and food costs, was at a 39-month low of 4.9%, it emphasised.
The global uncertainty and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance from the government and the central bank, the review stressed, underlining the need to bring the focus back on maintaining macroeconomic stability.
“Cereals, pulses and vegetables exhibited double-digit growth… [but] only 48% of food items have inflation of above 6%, and this includes 14 food items with inflation in double digits. Items like tomato, green chilli, ginger and garlic witnessed inflation of more than 50%,” the Ministry said in its monthly economic review for July.
Holding these “abnormal” upticks in some items responsible for fuelling high food inflation last month, the review said this is expected to be transitory. “Tomato prices are likely to decline with the arrival of fresh stocks by the end of August or early September. Further enhanced imports of tur dal are expected to moderate pulses inflation,” it pointed out, arguing that these and other government efforts “can soon materialise moderation in food inflation in the coming months”.
Dry conditions
Apart from the termination of the Black Sea Grain Initiative which has created “disorderly conditions around the supply of wheat and sunflower oil”, the Ministry noted that continued dry conditions in Canada and the U.S. have caused wheat prices to rise. “Subdued production growth of oil palm in Malaysia and concern over the production outlook of soybeans and rape seed in the U.S. and Canada led to a spike in vegetable oils price,” it added.
“Disruption in domestic production also aggravated the inflationary pressures. Interruption in the supply chain of tomatoes due to white fly disease in Kolar district, Karnataka and the swift arrival of monsoon in northern India caused a surge in tomato prices. Tur dal price also inflated due to deficient production in the Kharif season [of] 2022-23.”
Domestic consumption and investment demand are expected to continue driving India’s growth, but further global monetary tightening could hurt stock markets in emerging economies, the Ministry cautioned.
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