Surge in vegetable prices may halt easing of retail inflation

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vegetable price hike – Specifically tomatoesAnd Onion And potato, known as the “TOP” group – along with other factors that may hinder retail inflation easing based on the Consumer Price Index (CPI) for June. It can have a cascading effect on inflation in the following three months – July, August and September. The Ministry of Statistics will publish retail inflation data on Wednesday.

The “top” vegetables weigh 2.2 percent in the CPI-Combined heading index and 36.5 percent in the CPI vegetable basket. Vegetables, which account for 13.2 percent of the food and beverage baskets of the consumer price index, have historically been a major driver of food price inflation, a study published by the Development Research Group (DRG) in Reserve Bank of India Offers last week.

A quick survey of economists estimated that the June reading ranged between 4.5 and 4.7 percent, against 4.3 percent for May. Retail inflation has been declining since February, prompting expectations of a return to the median rate of 4 percent. However, higher vegetable prices, continued double-digit inflation for cereals, along with some contribution from pulses will likely affect not only the June figure but at least one of the subsequent three months (July-September-October) as well.

The DRG study report, written by Pooja Badi, Himani Shekhar and Akanksha Handa, said: “Although making up a small portion of the Consumer Price Index (CPI-C) basket, tomatoes, onions and potatoes (TOP) are a major contributor to headline inflation volatility.” She added that the fluctuations in the prices of vegetables may be high in general due to their perishability and vulnerability to weather-related disturbances against the background of less elastic demand, as they are essential vegetables for Indian households.

Meanwhile, experts believe that rising prices and the consequent impact on inflation will have a cascading effect. Sarvjit Virk, Co-Founder and Managing Director of FINVASIA, said: “The impact can soon be felt through lower purchasing power, changing consumption patterns and higher production costs, affecting businesses and individuals alike. Such a large price discrepancy is not only affecting the local market but also It also affects market segments that depend on exports of agricultural products.”

Echoing this, Tushar Trivedi, Head of Agribusiness, nurture.farm said the hike in vegetable prices in the past two months was due to unseasonal rains, crop failure and problems/challenges faced by farmers at the supply chain stage. . If prices do not fall, this could lead to higher inflation rates for the month of July. He said that high inflation could lead to a decline in purchasing power, which would affect consumer spending patterns, and might lead to a stricter monetary policy, adding that he expects prices to decline during August.

Higher inflation and the consequent impact on household budgets can affect consumer sentiment in general as people will have less money to spend on buying durable goods or spending on services such as short leisure travel. More spending on vegetables could lead to lower household spending, said Shailendra Singh, managing director and founder of Creduce.

Consumer spending could decline, hurting economic growth. Business production costs will increase. Vegetable prices can increase production costs for the companies that use them. This could lead to higher commodity prices in the future, and lower consumer spending.