Food inflation unlikely to dip below 7.5-8% next 2-3 months: Report

Even as the Reserve Bank of India (RBI) has been resisting pressure to cut the repo rate with food prices playing the spoiler, a report by the Bank of Baroda (BoB) does not see the food inflation abating below 7.5-8 per cent in the next two-three months.

This, it pointed out, will keep the consumer price index (CPI) above RBI’s projection of 4.9 per cent and 3.8 per cent om the first and second quarters, respectively, of the current fiscal year. 

The report blames this on the heatwave that has impacted the output of vegetables, particularly tomatoes, potatoes and onions, and their prices thereof in the April-June quarter.

While the report acknowledges that typically these vegetables witness a price surge during summers, it points out that the stress on supply and prices has been further accentuated by the heatwaves in some parts of the country.

Between April and June this, supply of tomatoes in the markets dipped by 18.5 per cent to 8,00,210  tonnes from the 9,82,108- tonne inflow seen in the corresponding period last year.

Similarly, the quantity of onions and potatoes coming in too dropped by 29.1 per cent and 12.3 per cent, respectively. The picture is not different from the situation seen in the longer tenure between December 2023 and June 2024 as compared to the corresponding in the previous year.

The report squarely attributes the price rise to the supply constraints. In fact, the prices of potato and onion rose by over 80 per cent. The spike in potato prices was most evident post-harvest season, when the new crop stopped arriving.

On the flipside, the heatwave has been a boon for a few industries. Consumption of FMCGs, power, consumer durables went up as people sought relief from the sweltering weather. Demand for electricity rose 11.4 per cent in April-June this year, as compared to 1.1 per cent in the corresponding period last year.

Likewise, production of ice creams went up by 26 per cent, air conditioners by 16.2 per cent and refrigerators by 2.7 per cent. Last year’s unseasonal rains had tempered the mercury levels and inevitably the demand for these products.