“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. The economists 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 account of rising food inflation. Experts highlight that the inflation is expected to rise further 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 –that held down inflation in the past few months – also rose sharply in July, Crisil economists stated.
Food products account for a 39% weight in the inflation basket and vegetables, Crisil economists noted, were the most volatile component.
Vegetable, which have a 6% weight in the retail basket, were still in deflation in June owing to base effects, but rose 12.2% sequentially, according to data released last month.
“These are affected more than cereals by extreme weather events, local supply disruptions and wastage,” Crisil economists stated, while also raising concerns on persistent double-digit inflation in cereals and pulses inflation, which has high monsoon dependency.
Commenting on the monsoon development, Crisil noted that even though the monsoon 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.”
Moreover, they said that excess rains in the northern and northwestern part of the country were a bigger concern for food inflation.
“The concern on food inflation is evident in the pre-emptive steps the government is taking, such as banning some types of rice exports, imposing stocking limits on wheat, and market intervention to improve supplies,” Crisil noted.
The government last month put ban on non-basmati white rice exports, calling for removal of such restrictions, as they could be harmful globally.
