Mighty vegetables lead the fall in CPI but cereals inflation persistent

Inflation for onion has stood at over 23 percent, along with radish at 11 percent, garlic at 97 percent and ginger at a whopping 153 percent.

Headline retail inflation for August 2023 came in at 6.8 percent, well below July’s 7.4 percent. While prices of perishable food items, including vegetables, are falling sharply, non-perishables, like cereals, pulses, spices, milk and sugar, continued to show signs of persistence.

Most of the downside has been led by tomato prices, within veggies, whose prices had shot up by over 700 percent in July to Rs 250-300 per kg but took a sharp turn as prices crashed back to normal by mid-August. Currently, tomato prices are ruling as low as Rs 30 per kg.

Prices of almost all vegetables, like tomatoes, green chillies, lady’s finger, beans and lemons, which had led the dramatic rise in retail inflation earlier, have fallen. Only prices of onions, garlic and ginger have risen.

Inflation for onion has stood at over 23 percent, along with radish at 11 percent, garlic at 97 percent and ginger at a whopping 153 percent.

However, the news provides less comfort when confronted by sticky inflation in other food sectors.

Also read: Retail inflation eases more than expected to 6.83% in August

‘Worrying trend in food inflation’

“There is a worrying trend in food inflation, with sustained inflation for non-perishables (pulses, cereals, spices) keeping overall inflation elevated even as transient price spikes for perishables fade,” said Emkay economist Madhavi Arora.

“Among vegetables, the perishable aspect of food is looking to ease as we go into the winter season but cereals, pulses and spices have a clear problem,” Arora told Moneycontrol.

Despite the government’s intervention via various supply-side measures, with regard to wheat and rice, prices are continuing to increase at margins. While prices of wheat are up 3 percent on year, they are up 10.4 percent for rice.

Pulses have been showing a worrying trend, with prices of tur up 30 percent, followed by a rise of 10 percent inflation in moong and 7.5 percent in urad, Ministry of Consumer Affairs data shows.

Meanwhile, inflation in spices has only strengthened, sequentially, from the last month, up from the inflation rate of 21.6 percent in July to 23.91 percent in August.

The jeera factor

The inflation here is mainly led by jeera – at 118 percent in August. “Jeera used to be a category no one even spoke about, but with over 3.5 percent month-on-month increase, even this smaller weight category is feeding into overall inflation,” Arora said.

With the sowing of kharif crops increasing only marginally by 0.4 percent, compared to last year, as on September 9, economists predict cereal inflation to continue to remain sticky till at least the end of the year.

While already working with a low base, latest data shows that the sown area of pulses is down 8.5 percent, with paddy registering an increase of only 2.7 percent.

Sowing of coarse cereals, such as bajra, ragi, maize, sugarcane and oilseeds, is at par with last year’s levels. Cotton, however, has seen a marginal drop of 1.4 percent.

To further aggravate this, a 36 percent rainfall deficiency in August has swung the cumulative rainfall for the season from a surplus of 5 percent, as of end- July, to a deficit of 10 percent at the end of August. Heavy rainfall has lashed the north-eastern and north-western region in September.

“Dwindling stocks of wheat with the Food Corporation of India, anticipated shortfall in kharif paddy yields and annualised decline in area-sowing under Kharif pulses this year are factors that could add to price pressures,” Yuvika Singhal, economist at QuantEco, has cautioned.

But according to Madhavi Arora of Emkay, there is some hope at the end of the tunnel.

“Inflation is still a mix at this point in time, with pulses showing an upward trend. While I expect pulses inflation to remain sticky for the third quarter, they should see a sequential fall beginning fourth quarter onwards,” she said.

Also read: Driest August since 1901 - what it means for agriculture in India