Are we looking at a respite from high food inflation?

India has faced steep inflation over the last couple of years. The stubbornly high prices forced the Reserve Bank of India’s Monetary Policy Committee to meet on November 3 to draft a report explaining to the government its failure to stick to the inflation target and the proposed remedies.

The central bank has moved swiftly since early May to raise policy rates to curb red-hot inflation but it has now spent 10 months above the RBI’s tolerance ceiling of 6 percent.

The central bank expects inflation to ease to its target of 4 percent over two years.

While there are signs that input price pressures are dissipating, high food costs continue to burden household budgets.

Russia’s invasion of Ukraine in February sent food prices sky high, as both countries are one of the biggest suppliers of wheat, barley and other commodities.

The World Bank’s food price index is expected to rise 18 percent in 2022.

Between July and October, food inflation has been high in almost all low- and middle-income countries. A majority of these have seen inflation levels of above 5 percent, with many experiencing double-digit inflation, according to the World Bank.

Though the Indian government moved swiftly to curb exports of key grains to ensure food security and price stability, untimely rains pushed up prices.

Also read: Indian economy more robust than emerging market peers: Morgan Stanley's Jonathan Garner

Still, there is hope that food inflation may cool in the months ahead, Sreejith Balasubramanian, an economist at IDFC Mutual Fund, said.

“Prices of cereals, particularly of wheat, have been of concern in 2022 but there is potential for some incremental moderation in growth,” the economist said in a note.

While prices of certain pulses and vegetables have eased from early November, they remain above October levels.

Farm input cost growth has been falling since July. Excess rainfall in October would have its impact but the early signs are encouraging, he added.

Here is Balasubramanian’s crop-wise analysis:

Wheat: The procurement of wheat was lower this year and prices have risen nearly 12 percent in the April-October period. The Food Corporation of India (FCI) estimates wheat stock on April 1 2023 to be 50 percent higher than the mandated level.

Rabi season wheat sowing is up 10 percent from a year ago, which could further be aided by the healthy soil moisture and reservoir water levels, which is a good sign.

Rice: Prices were up 8.3 percent during April-October but the average price in November, so far, is slightly down from October, the first sequential drop in seven months.

Procurement of Kharif output has started but there could be some hit from excess rainfall in major producers like Uttar Pradesh. FCI estimates rice stock to be 74 percent higher than the mandated level on April 1.

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Pulses: Prices rose only 3.6 percent in April-October. Rabi sowing is down marginally, so far, but the main sub-categories of gram and lentil have gained. Soil moisture and reservoir levels should help.

Oils and fats: The import duty squeezed prices between June and October. The duty cut has been extended till March 2023.

Vegetables: Tomato prices have been very volatile but eased in November. Potato inflation has been easing and the new harvest could hit the market by December. Onion prices are up.

Seasonal winter deflation, too, could drive food inflation lower.