Pulses with cereals, onions threaten upward spiral of inflation

Pulses, along with cereals, are set to join onion in pushing retail and wholesale prints in the coming months.

Pulses and cereals have a 15.30 per cent and 3.46 per cent weightage respectively in retail inflation based on the Consumer Price Index and producers’ inflation based on the Wholesale Price Index (WPI). Data released on Tuesday showed that WPI inflation for pulses surged to 19.4 per cent in October, as against 17.7 per cent in September. Another set of data, made public on Monday, revealed that pulses inflation reached nearly 19 per cent in October, as against 16.3 per cent in September. Retail inflation in cereals remained in double digits.

The rise in pulses and cereals is attributed to two reasons. One, the lower production estimated for the current fiscal. Second, sowing during Rabi (as on November 10) is lower than that in the previous year. Though the government is hopeful that sowing will improve in the coming days, the market is not so hopeful. Experts feel rising prices of pulses, along with sustained higher prices of cereals and onion, are likely to break the downward trend in retail inflation in the coming months. One positive factor is that out of TOP, the prices of tomatoes and potatoes are moderating.

In a note, economists at HDFC Bank highlighted that pulses inflation rose to a 41-month high in October, while cereal inflation remained elevated in the same month. Based on“Mandi prices, onion and tomato prices have risen by 59 per cent and 20 per cent, respectively, while there has been a further pick-up in pulses and cereal prices in November, which is likely to exert upward pressure on headline inflation,” the note said, while adding that the full impact of a rise in onion prices (which began in the second half of October) is expected to be seen in the November print.

Rajni Sinha, Chief Economist with CARE, said the recently released first advance estimate of Kharif foodgrains production showed a dip across categories, compared with last years’ final estimate. The fall was sharpest for oilseeds (17.7 per cent), followed by pulses (6.6 per cent), and cereals (4.5 per cent). Though “these estimates are subject to revision (usually higher as suggested by trend), upside risk to the food inflation outlook persists, if production remains close to the current estimates,” she said.

Meanwhile, some experts feel prices are likely to come down. Dharmakirti Joshi, Chief Economist with Crisil, said retail food inflation saw a mixed trend — prices of vegetables fell, that of pulses hardened — inching closer to 20 per cent, with cereals remaining at 11 per cent, which kept the overall food inflation rate unchanged. “For the December quarter, we expect some softening in food inflation with the kharif harvest entering the market, aided by government intervention,” he said.

Mohit Rahlan, CEO with TIW Capital, sees some impact in wholesale food prices. “Food inflation remained benign as vegetable and potato prices were markedly lower as compared to last year. It offset an increase in onion and pulses prices,” he said.