Spiralling food prices: on the build-up of underlying inflation pressures
Policymakers must guard against inflation to ensure sustainable growth
Indian households find themselves yet again struggling to cope with a sharp surge in the prices of essential kitchen staples — ranging from tomatoes, onions and potatoes to tur dal and rice. Tomato prices have more than doubled month-on-month with the all-India average retail price as on June 29 soaring to ₹53.59 a kilogram, from ₹24.37 on May 29, data from the Consumer Affairs Department’s Price Monitoring Division show. And while the rise in onion and potato prices over the same one-month period is a seemingly far-more benign 7.5% and 4.5%, respectively, the overall trajectory in price gains across the wider food basket is symptomatic of the unsettling build-up of underlying inflation pressures in the economy. For instance, the price of tur dal, a key protein source in the diets of vegetarian households, continues to keep rising; it had climbed 7.8% month-on-month to ₹130.75 a kilogram on June 29, as per the government’s data. Official retail inflation data for May, released earlier this month, had shown that prices of pulses, which includes tur dal, had quickened by 128 basis points year-on-year to a 31-month high of 6.56%. The government’s imposition of stock limits on urad and tur on June 2 seems to have so far done little to cool price gains in lentils.
To be sure there is a seasonality component to the prices of farm produce and their supply is largely determined by factors including timing of the harvest and the prices prevailing at the mandis when the farmers transport their crop to the markets. Just last month, tomato growers in rural Maharashtra had dumped sizeable quantities of their produce on the roads after being offered unremunerative prices. However, prices of several of these food items, including tomatoes, are still substantially higher than even the same time last year with the modal daily weighted average arrival prices at the mandis as per the government’s agmarket website revealing tomato prices almost tripled year-on-year to ₹5,579 a quintal as on June 29. The same arrival price data show a 35% jump in tur dal and a 19% increase in common paddy (rice). With the monsoon rains 13% in deficit so far this year, and the outlook for spatial and temporal distribution in the coming months clouded with uncertainty by the El Niño, there is a real risk that food prices could cause retail inflation to accelerate again. Policymakers need to walk the talk and retain laser focus on taming inflation. After all, as the Reserve Bank of India’s economists noted in the latest bulletin, “the path to high but sustainable inclusive growth has to be paved by price stability ”