Costly vegetable cook up concerns, could see inflation pushed up by 5.5%
- Venkatesh Raghavan
- Jul 13, 2023
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Vegetable vendor awaits customers in a wholesale market
MUMBAI: Call it irony or what else, the low prices of vegetables that helped ease inflation over the past few quarters may well be responsible for a surge in the Consumer Price Index (CPI)-based inflation due to a steep rise across many commodities.
According to three economists quoted in a Reuters report, the sudden surge in vegetable prices over the past few weeks, especially in tomatoes, ginger, and chilly could push India's retail inflation, (that eased to between 4 per cent and 5 per cent in April and May) towards 5.5 per cent in the July-September quarter.
Gaura Sen Gupta, an economist at IDFC First Bank told Reuters that if the spike in vegetable prices sustains, it could push July inflation towards 6 per cent. Gupta said that based on data provided by the National Horticulture Board, vegetable prices, on a CPI-weighted basis, are up 34 per cent so far in July, after rising 18 per cent in June.
Deutsche Bank's chief India economist, Kaushik Das, has said in a note, "Even if prices start to cool off, inflation could hit 5.5 per cent over July to September. That is marginally higher than the 5.2 per cent forecast by the Reserve Bank of India (RBI)."
Das wrote, "While tomato prices have already increased sharply due to weather disruptions, other food items are also on the rise and the cumulative impact of these may be felt more in July than June."
according to data from the Ministry of Statistics and Programme Implementation on Monday, India's retail inflation dropped to 4.25 per cent in May from 4.7 per cent in April. The CPI inflation in May is the lowest in 25 months.
The food inflation also eased to 2.91 per cent in April. It was 3.84 per cent in the month of April. The food basket accounts for nearly half of the CPI. While, inflation in fuel and light also eased to 4.64 per cent, from 5.52 per cent in April.
Nomura's economists expect inflation to average around 5.5 per cent over July and August and while that will not force a rate hike, they expect it will keep monetary policy tight. RBI Governor Shaktikanta Das has said that the pause in rate hikes over the past two meetings should not be seen as a pivot as the disinflation process will be protracted.
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Venkatesh, Venky to his friends is our Consulting Editor. He is one of the most senior journalist in the field, with over three decades of experience in some of the top media houses. He keeps a keen eye on current affairs across the world.
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