“Extreme weather events, even if brief, can cause wild food price swings, especially for vegetables. Government policies and geopolitical developments are increasing their influence on domestic inflation in recent years,” Crisil economists said on Wednesday.
Experts highlighted that inflation is expected to rise further in July as food inflation is yet to abate on account of price shock from vegetables.
While rice, wheat, pulses, milk and sugar prices continued on an uptrend; vegetables, which held down inflation in the past few months, also rose sharply in July, Crisil economists said. They pointed out that despite better monsoon conditions in the last three of the four years, inflation had remained high. “Hence, a wider set of factors in addition to the monsoon’s progress need to be taken into account to assess inflationary pressures in the economy,” they said.
India’s inflation had risen to 4.8% in June on high food prices. Food products account for a 39% weight in the inflation basket and vegetables, Crisil economists noted, were the most volatile component.
Vegetables, which have a 6% weight in the retail basket, were still in deflation in June owing to base effects, but rose 12.2% sequentially.
“These are affected more than cereals by extreme weather events, local supply disruptions and wastage,” Crisil economists said, while also raising concerns on persistent double-digit inflation in cereals and pulses, which has high monsoon dependency.
On monsoon development, Crisil noted that even though the rains had caught up in July, the volatility was higher.
“Monsoon’s progress and distribution remain critical in the coming two months for food production and inflation.”
