Cooling food prices may have helped moderate retail inflation to a five-month low of 6.7% in July, but August’s inflation figure could reverse due to concerns about the uneven progression of the monsoon across the country and other factors.
Food price increases fell to the lowest level since March 2022, at 6.75% in July, down from 7.75% in June, and were seen as the main driver in bringing consumer price inflation back below 7% after a three-month slump. In recent weeks, the government has imposed restrictions on both external and internal trade of food items such as rice, atta (wheat flour), and tur dal , in response to rising prices.
Food items account for slightly more than 45% of the Consumer Price Index (CPI), and the National Statistical Office will release the August CPI on Monday.
Retail inflation averaged 7.28% from April to June 2022-23, and the RBI reduced its second quarter (Q2) inflation forecast to 7.1% from 7.4% in August. However, July’s reading of 6.7% indicates that high CARE Ratings chief economist Rajani Sinha noted that while overall food inflation moderated in July, inflation in cereals such as wheat and rice had risen to 6.90% due to a consistent rise in their prices due to limited supply.r price increases can be expected in August and September. CARE Ratings expects inflation in Q2 to be “pretty much in line” with the RBI’s 7.1% estimate.
The base effect from August 2021, when retail inflation was 5.3% compared to 5.6% a month earlier, may also lead to a slight rise in the CPI reading. Another factor that may drive up retail food prices is that August marks the first full month of GST levies on unbranded, pre-packed food items which kicked in on July 18.
“With the start of the festive season, we believe that food inflation will pick up in August 2022, and we also see upside risks to food prices due to floods and uneven monsoon,” said Hitesh Suvarna, an analyst at JM Financial, in a research note, adding that mandi prices had risen in the first half of August.
While the public authority had forced a prohibition on wheat trades in May, a setback underway of wheat because of heatwave prompted disturbances, and lower rice grounds because of lopsided downpours could keep supply conditions tight, bringing about high cereal expansion in the close-to-term, Ms. Sinha said. Besides, the unpredictability in the rupee and lopsided storm dissemination keep on representing a gamble to generally speaking expansion, she stressed.
The Fundamental Items Act was summoned on August 12 to crack down on tur dal dealers who attempted “confined deals” in order to drive up the cost. A fortnight later, the product of atta, maida (refined flour), and rava (wheat semolina) was prohibited, referring to a sharp spike in their worldwide costs and the need to guarantee by and large food security in the country. Last week, a 20% commodity obligation was forced on rice products to quiet homegrown costs even as paddy planting keeps on slacking because of the lopsided movement of rainstorms in various pieces of the country.
ICRA boss market analyst Aditi Nayar forewarned that August and September retail expansion numbers could be “somewhat” higher than July’s 6.7% level because of base impacts. While eatable oil, vegetables, and meat and fish expansion had dropped in July, organic products, eggs and grain had recorded significant increases, she called attention to.
Following July’s retail expansion information, the Money Service said that strategy steps like support and adjusted arrivals of cradle stocks on rice, heartbeats, and onions, and commodity limitations on wheat are supposed to keep a mind food expansion. “Without additional shocks”, expansion pressures are supposed to be covered because of a balance in worldwide product costs, it had said.
In 2007, while the Arranging Commission delivered the neediness gauge, a decrease in destitution was credited to low food expansion in the earlier year. During 2008-2012 food expansion arrived at the midpoint of 10% each year. One can gather the effects on poor people. (Curiously, a new destitution gauge shows a sharp decrease in the neediness level in the country.)
This warrants a political and strategic reaction. The political reaction should be a quest for the purposes of cost ascend, while the strategy reaction should be to fix these reasons. Starting around 1996-97 when India opened up its horticulture area to a worldwide market, it has been exposed to worldwide changes. For all intents and purposes, Indian farming can’t be delinked from worldwide turns of events. In any case, it can be safeguarded at the nearby level through political and strategic mediations. A strategy mediation can be essentially as straightforward as dispersing sponsored food all the more proficiently. Or on the other hand, a political intercession can be essentially as basic as welcoming food independence back on the public plan. These explanations sound wore out yet they should be stressed.
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