Heatwave likely to raise vegetable inflation

Posted on by

With a severe heatwave striking parts of north and central India, vegetable inflation is expected to rise impacting headline inflation in turn. Vegetables have a weight of nearly 6 per cent in the Consumer Price Index (CPI) on which retail inflation is calculated.

Headline based retail inflation slipped a tad to 4.83 per cent in April from 4.85 per cent of March. Although vegetable inflation also dropped, it was still high at 27.8 per cent in April. It was 28.3 per cent in March. Recent trend in vegetable prices showed that TOP (Tomato, Onion, Potato), especially potato, is on the rise. With the heatwave, no relief is expected on vegetables.

According to latest edition of RBI bulletin, amongst key vegetables, onion prices have dropped further in May. Potato and tomato prices continue to rise. “The prices of vegetables, cereals, pulses, meat and fish in the food category may keep the headline elevated and closer to 5 per cent in the near term, in line with projections set out in the April MPC resolution in spite of deflation in fuel prices and further softening of core inflation to a new historic low,” the bulletin said.

production

Government data shows production of vegetables is estimated to be lower. First advance estimate for 2023-24 pegs production at 209.39 milliion tonnes as compared to 212.55 million tonnes of 2022-23. While, production of tomato is estimated to go up but same is not true for onion and potato. Production of Onion in 2023-24 (First Advance Estimates)  is expected to be around 254.73 Lakh Tonne compared to around 302.08 Lakh Tonne last year due to decrease of production in Maharashtra, Karnataka, Andhra Pradesh and Rajasthan.

Production of Potato in 2023-24 (First Advance Estimates) is expected to be around 589.94 Lakh Tonne compared to around 601.42 Lakh Tonne last year, attributed to decrease in West Bengal over the previous year.

Aditi Nayar, Chief Economist with ICRA said that a fall in the domestic output of few pulses and potato in 2023-24, as well as the seasonality in perishables is likely to have exerted pressure on the prices of such items in May 2024. On a positive note, the price of rice has remained stable, while the prices of wheat, onion, and most varieties of edible oils have softened in the current month, compared to April 2024.

food prices

“While the international prices of crude oil have eased in the ongoing month, the food prices are vulnerable to above-normal temperatures and heatwave conditions during the summer season, which is likely to keep food inflation at elevated levels until June 2024,” she said. Thereafter, the impending favourable base effects during July-September quarter of FY2025 are expected to materially soften the headline inflation print to 2.5-3.5% in July 2024 and August 2024. Nevertheless, “a timely onset and well distribution of monsoon season would be crucial to support agriculture output in 2024-25 and help control food inflation,” she concluded.