Food factor
Inflation is impacting personal consumption and hurting growth
The latest retail inflation data, yet again, underscores how volatile food prices continue to hold hostage not only broader inflation but also the lynchpin of economic growth, namely, personal consumption. While February’s headline Consumer Price Index (CPI)based reading remained virtually unchanged from the preceding month, at 5.09%, the pace of food price gains computed from the Consumer Food Price Index accelerated by 36 basis points to 8.66%. Vegetable prices continued to remain the biggest concern, with the thirdheaviest food category in the food and beverages sub group of the CPI registering 30.3% inflation yearonyear, a disconcerting 315 basis points acceleration from January’s reading. And inflation in cereals, the largest weight among foods in the CPI, also remained high at 7.6%, just marginally slower than the preceding month’s 7.83% pace. Among vegetables, the potatooniontomato triumvirate, which is the mostwidely consumed group nationwide and constitutes more than a third of the weight in the category, led the charge. Potato prices moved from an almost 2% yearonyear deflation in January to a 12.4% inflation, onion logged 22.1% inflation and tomato’s price gains quickened by close to 400 basis points to a sixmonth high of 42%. A look at the Department of Consumer Affairs’ daily price monitoring dashboard shows little respite on this front, with average retail prices of potato, onion and tomato reigning 21.3%, 41.4% and 35.2% higher, respectively, as on March 14 from a year earlier.
Clearly, the government’s supply side measures, including a threemonthold ban on export of onions, has had little impact on cooling prices of these politically sensitive food inputs. And the outlook too is far from reassuring. Onion output in the 202324 horticulture crop year is seen more than 15.6% lower than last year and production of potato is projected to log an almost 2% deficit as in the Ministry of Agriculture and Farmers Welfare’s First Advance Estimates released on March 7. The water storage data from the Central Water Commission, showing live storage at 150 reservoirs across the country as on March 14 at 40% of capacity, and trailing both the 10year average and the yearearlier levels, also does not portend well for summersown crops. This is particularly so in the southern region, where the storage deficit compared with the 10year average is a most acute 29%. Reserve Bank of India Deputy Governor Michael Patra aptly summed up the risks to the economy from persistently high food inflation in his statement to the Monetary Policy Committee last month when he observed: “private consumption, which accounts for 57% of GDP, is languishing under the strain of still elevated food inflation. This is particularly telling in rural areas. Inflation has to be restrained to its target for growth to be inclusive and sustained.” Policymakers have their task cut out if the economy is to avoid a summer of discontent as the country heads to the polls.