The effects of this year’s drought are quietly showing up in the form of a supply crunch and surging food prices, the biggest driver of inflation.
A string of measures haven’t worked, leaving the government with few options other than speeding up imports.
India’s year-on-year food price index was up 19.04% in the 12 months to November 28, causing the wholesale price index inflation to rise by 4.78%.
“We believe India’s core inflation is starting to rise. We could see much higher inflation rates of around 6.5% by December,” said Sonal Varma, economist with the Japanese brokerage and research firm, Nomura.
A slew of commodities are in short supply (see box), causing a supply-inflation to kick in. Rice stocks are adequate but prices are up because drought is set to dent summer output by 18%.
India is more vulnerable than others to food price swings. For example, a 20% rise in rice price would translate to a 2.2 percentage point rise in consumer price index because of the relatively large weightage of food in Indian inflation.
During the last four months, the wholesale prices of sugar have gone up by 28% and pulses by 23%. Vegetable prices have moved up by 17% in the last year and potato by 96.4%.
Prices have shown to firm up further on retailing fronts, indicating hoarding. For example, potatoes in Delhi’s Azadpur wholesale market were selling for Rs 8 on Tuesday but retailing for as high as Rs 30.
“Potato prices have gone up because of high demand, as other vegetables are even more expensive,” said S. Bhonde, additional director at Nashik-based Horticulture Development and Research Foundation.
The government has signed deals to import 4.8 lakh tonnes of pulses to augment availability, of which 2.97 lakh tonnes have landed. The remaining 3.89 lakh tonnes will come in phases, which means prices will remain under pressure.
“Inflationary trends will persist until supplies improve with rabi or winter-sown harvests,” Credit rating agency CRISIL’s principal economist D.K. Joshi told HT.