Commodity price rally in July stokes inflation concerns

Price tags are seen on the bags of pulses that are kept on display for sale outside a shop at a market in Mumbai (Representative Image)

Inflation concerns have surged as most commodities witness substantial price gains during July. From energy to metals to food, a broad range of commodities is experiencing significant increases.

Energy prices have been on the rise over the week and the month. Brent crude has shot up by 4.2 percent this week and 13 percent over the month. Gasoline prices have seen an even greater increase, soaring by 8 percent in the past week and a staggering 19 percent over the month. Heating oil and Urals have also experienced notable hikes, rising by 7 percent and 6 percent this week, and 15 percent and 17 percent respectively during the month. Even coal, which had a more modest increase, saw a 2 percent rise this week and a 6 percent increase over the month.

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Metals have not been exempt from the surge in prices either. Copper prices rose by 1 percent in the past week and 1.9 percent over the month. Steel also witnessed a noteworthy increase of 2.4 percent in the week and 2.8 percent in the month. Iron ore and zinc have also experienced price hikes, albeit less dramatic, with iron ore rising by 0.2 percent this week and 2.8 percent this month, and zinc climbing by 0.4 percent and 4 percent in the week and month respectively. However, aluminium prices bucked the trend and saw a decrease of 2 percent over the week despite still managing to rise by 3 percent over the month.

Soft commodities have had their fair share of price surges too. Wheat prices have seen a massive increase, reaching 15 percent over the week and 4.5 percent over the month. Rice and cotton also experienced notable hikes of 3.5 percent and 4 percent respectively over the week, with cotton also seeing a 6.5 percent increase over the month. Sugar, palm oil, and soybean prices all rose by 4.7 percent, 6 percent, and 2 percent respectively over the week. Over the month, these commodities experienced even greater increases: palm oil surged by 11.8 percent, soybean by 6.8 percent, and sugar by 5 percent. However, not all soft commodities witnessed gains, as corn and coffee prices declined by 3.8 percent and 3 percent respectively over the week.

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According to sources, the government is contemplating taking action on pulses and wheat after imposing a ban on rice exports.

"Prices have firmed up, so it is important to look at policy measures. Options on the table include tweaking import and customs duties, export-related steps for certain varieties of these commodities, as well as other moves to smoothen out the demand-supply scenario,’’ a government official aware of the matter said. However, a final call on whether there is a need to intervene as well as the kind of policy moves required to tackle the rise in the prices of wheat and pulses, would hinge on the deliberations of an inter-ministerial committee, the official added.

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To control prices, certain measures are already in effect. The government has not yet lifted the ban on wheat exports, which has been in place since May last year. Additionally, for pulses, the customs duty remains at 10 percent on tur and urad and will continue to stay nil until the end of FY2023-24. On July 20, the government prohibited the export of non-basmati white rice to curb rising domestic prices, as rice experienced a 12.97 percent increase compared to the previous year.

India has been experiencing a consistent rise in the cost of its food basket in recent months, with wheat, rice, milk, vegetables, and pulses all witnessing firm price increases. The overall food inflation surged to 4.49 percent in June from 2.96 percent in May, leading to a higher headline retail inflation of 4.81 percent in June compared to 4.31 percent in May.