Economy
Mint Primer Hidden in plain sight: New food inflation data
Summary
- Food inflation shot up to 9.4% year-on-year in June—the highest in six months—from 8.7% a month earlier, led by a sharp increase in the prices of vegetables (up 29.3%), pulses (16.1%) and cereals (8.8%).
Food prices rose sharply in June after a searing heat wave. The hope now rests on ample monsoon rains to soften the blow. But excess rains can play a spoilsport. Weather shocks become the new normal, and predicting food prices is a fool’s errand. Mint explains.
How have food prices moved?
Food inflation shot up to 9.4% year-on-year in June—the highest in six months—from 8.7% a month earlier, led by a sharp increase in the prices of vegetables (up 29.3%), pulses (16.1%) and cereals (8.8%). For vegetables—short-duration crops and price-wise the most volatile component—a prolonged heat wave in May and June led to a supply shortfall and higher prices. For pulses, prices have been on the boil for long—indicating a chronic supply crunch—because of a consistent drop in production due to multiple factors, including erratic rainfall. Pulse output was 10.2% lower in 2023-24, compared with 2021-22.
What about Kharif and monsoon progress?
The June-September monsoon is critical to food production. June witnessed 11% deficit rains (compared with the 50-year-average) but due to ample showers in July, the deficit was down to just 2% as of 15 July. But this near-normal number hides regional imbalances—in 31% area, rains continue to be deficient while another 14% has seen excess rains. Meanwhile, agriculture ministry data shows that till 12 July, planting of Kharif crops had been completed in 58 million hectares, over half the normal planting area of 110 million hectares—with year-on-year higher planting of rice, pulses and oilseeds.
Read more: Raghuram Rajan: Brace for stronger inflation and possibly weaker central banks
Does this imply lower prices in the future?
Wholesale food prices may soften next month due to a high base effect (food inflation last July was 11.5%), but erratic and extreme rains could keep them high for consumers. The encouraging Kharif planting data pertains to only non-perishables, to be harvested starting October. Excess rains in August-September could pose a risk for pulses and oilseeds.
Why are food prices so critical to inflation?
Food and beverages comprise 46% of the retail inflation basket. In India, where 800 million people depend on free food handouts, expensive vegetables, pulses and cereals means less money to spend on other consumption items and long -term investments on education and health. With incomes and wages rising at a sluggish pace, families can ill-afford nutritious food. The price of tur, a pulse variety, is 24% higher year-on-year (as of 15 June). Potatoes and onions are 56% and 67% costlier compared with last year.
Retail tomato prices recently surged past Rs100 a kg. But food inflation numbers will not reflect this increase as prices last year were even higher (it had crossed ₹150 per kg in July 2023). So, inflation data at times mask the real pain families have to endure.
How food prices build up over years also matters to household budgets. For instance, tur dal was retailing at an average price of ₹103 per kg in July 2022, and ₹168 now—a 63% jump in just two years.
Read more: Climate shocks, India’s K-shaped inflation and interest rate easing
Why is it so difficult to tame food inflation?
The elephant in the room is the climate crisis. From rice and wheat to vegetables and dairy, adverse climate is a recurrent risk—throwing production forecasts out of the window. The events keep coming—intense rains after prolonged heatwaves, warmer winters, drought and floods. The government ordered export curbs and eased imports to boost domestic supplies. But it will have to do more to adapt to a warmer world—from better farm insurance to investing in research to develop resilient crop varieties.
