Indians have been grappling with soaring vegetable prices, affecting items like tomatoes, ginger, and brinjal, which has been particularly burdensome for lower and middle-income consumers. As if that weren't enough, there is now a concern about cereal shortages exacerbating the price pain.
According to HSBC Holdings Plc, the widespread cereal shortages in India could drive inflation higher in the country, even though the shock from vegetable prices is expected to ease in the upcoming months.
Economists Pranjul Bhandari and Aayushi Chaudhary stated in a report that while concerns about rising food prices are justified, the real issue lies not with tomatoes but with cereals, including rice and wheat, which may lead to higher prices.
HSBC maintains its inflation forecast of 5% for the year ending March 2024 but acknowledges higher risks if cereal inflation surges. The economists highlight that rain distribution and rice sowing data in the following weeks will be critical factors to monitor.
The inadequate sowing in northwest India and insufficient rains in the south and east regions could adversely affect the rice crop and disrupt shipments from India, the world's largest rice exporter. Consequently, there may be global price implications for wheat, which serves as a partial substitute for rice.
Furthermore, the recent warning from Russia, stating that vessels heading to Ukraine ports in the Black Sea could be seen as potential carriers of military equipment, has driven wheat futures higher, potentially leading to further price jumps in Indian cereal prices. El Nino weather patterns could also contribute to increased prices.
Cereal prices hold significant weight in the consumer price index basket, constituting nearly 10% and being a staple in Indian diets. The surge in food prices pushed retail inflation to a three-month high in June, prompting economists to raise their price forecasts for the year. Consequently, this might lead to the central bank maintaining interest rates for an extended period.
The containment of price pressures is of utmost importance for Prime Minister Narendra Modi, especially with national elections approaching next year. As part of an effort to rein in domestic prices, the nation recently banned exports of cheaper, non-basmati white rice.
Costs of food items ranging from chilly to staples including pulses and rice, consumed by crores of people, are singing Indians, who in any case have been shelling out more than Rs 100 per litre of petrol in many parts of the country. Higher prices for goods and services across various sectors have led to consumers shelling out more than they did in recent years, leaving less in their wallets.
The inflation surge has been influenced by weaker monsoon rains in some areas and floods in others, which affected the prices of vegetables and pulses.
“Tomatoes are a short-cycle crop and price rises tend to reverse in two months,” the economists said. The hikes in prices of pulses, sugar and oilseeds were also potentially manageable, they said.
Crisil has raised concerns over 'inflation' in pulses due to changing weather patterns. Economists have suggested a steeper-than-expected surge in the prices of vegetables, especially tomatoes, could push India's retail inflation towards 5.5% in the July-September quarter.
There are also forecasts of dry spells in the second half of July owing to El Nino, which may also have a negative impact on the growth of paddy and other produce. “So, we cannot be sure of the peaking of the food prices as it will be dependent on monsoon performance. Any escalation of geo-political confrontation and consequent world food price rise could also add to food inflation,” said Ranen Banerjee, Partner, Economic Advisory Services, PwC India.
Source Name : Economic Times