Retail price gains registered a surprise acceleration last month with June’s provisional Consumer Price Index (CPI) reading showing inflation snapping a five-month downtrend and quickening to 5.08%, 28 basis points faster than the 4.80% logged in May. Food prices were, as expected, the main culprit. Year-on-year food price inflation based on the Consumer Food Price Index (CFPI) quickened by 67 basis points in June to a worrying 9.36%. Even more disconcertingly, the CFPI logged the fastest sequential acceleration in 11 months, as food prices rose by 3.17% from May’s levels and dragged the broader CPI too higher by 1.33% from the preceding month. It is precisely this kind of unpredictability in food price gains that monetary policymakers have been concerned about in opting to leave interest rates unchanged. RBI Deputy Governor Michael Debabrata Patra had been emphatic in observing at the Monetary Policy Committee’s meeting last month that “the Indian economy remains hostage to intersecting food price shocks. Their repetitive occurrence calls for intensifying monetary policy vigil to ward off spillovers to other components of inflation and to expectations”. Food price data show that the CFPI’s nine sub-categories posted month-on-month gains, with eight of them, except the sugar and condiments group, registering sequential accelerations. Vegetables continued to experience the most intense price gains, rising 29.3% year-on-year and by a worrying 11-month-high sequential pace of 14.2%. The most widely consumed potato, onion and tomato continued to log some of the fastest gains, with their prices rising year-on-year by 57.6%, 58.5% and 26.4%, respectively.
Nor does the outlook for food prices offer much comfort. Data on the Department of Consumer Affairs Price Monitoring Division’s website shows that the all-India average retail price of potato and onion continued to remain on a tear as on July 15, being almost 56% and 67% higher, respectively, than a year earlier. And tomato prices, though almost 43% softer than 12 months ago, were 76% higher than in mid-June, likely signalling a shift in its price momentum. Prices of cereals, the largest constituent of the food basket, too offered little respite with the average retail price of rice and wheat running almost 10% and 6% higher than a year earlier, respectively. Also, IMD data as on July 14 reveal that countrywide precipitation since June 1 was still not only at a 2% deficit, but also spatially skewed. Eleven of India’s 36 meteorological sub-divisions were still classified ‘deficient’, meaning these regions had received 20%-59% lower rainfall than the long-period average. With some key food growing areas including Punjab seeing deficient rains, policymakers face an unenviable task in trying to slow the pace of inflation.
