Steep rise in tomato prices remains a concern, says RBI bulletin

The RBI’s six-member Monetary Policy Committee (MPC) is scheduled to meet next August 8-10

With prices of tomatoes on the boil for over a fortnight, Reserve Bank of India (RBI) in its monthly bulletin has weighed in on the issue terming the spike as a ‘major concern’, as mentioned in the latest edition of their State of the Economy article.

“Spillovers from tomato price spikes to prices of other commodities and unhinging inflation expectations remain a major concern. Increasing amplitudes of price spells over the years calls for improving the supply chains to contain overall inflation volatility,” it said.

The State of the Economy article, published on July 17 as part of the monthly RBI bulletin, does not represent the views of the central bank.

Retail prices of tomatoes have shot up across the country. The prices spiked from Rs 40 per kg in June to an average of Rs 100 per kg in the first week of July and stayed on the rise amid heavy rainfall that has impacted supply from different regions of the country.

This led to the government stepping in to arrest the increase in retail prices of tomatoes with the Department of Consumer Affairs on July 12 ordering the procurement of tomatoes from Andhra Pradesh, Karnataka and Maharashtra for distribution in major consumption centres.

The article by the RBI staff further said that as per empirical estimates, inflation in retail prices is less volatile than in wholesale prices. The articled said that though yearly peaks in tomato prices have witnessed a general increase, the troughs have remained largely constant, indicating that prices do not ratchet up across spells.
The seasonal variation in prices is considerable given that tomato is a highly perishable item with a very short crop duration. However, these episodes are short-lived, the article said.

“Multiple crop cycles with varying time spans across locations lead to more than one spell of price spike within the same year,” it added.

RBI staff’s commentary on the recent spike in tomato prices comes at a time when the latest headline retail inflation in June rose to 4.81 percent after falling for four straight months. This increase was driven by higher food prices led by vegetables.

While the average retail price of tomatoes a month back was Rs 30.4 per kg. As on July 17, it has spiralled to Rs 120.9 per kg, as per data from the Department of Consumer Affairs.