Estimates of a record winter crop could wipe away some of the misery inflicted by food inflation over the last few months. The grain shortfall caused by a deficient monsoon in 2009 is now set to halve. Signs of a bumper crop this winter were available as early as September. The backloaded rainfall of the previous monsoon season, apart from playing havoc with the summer sowing, helped recharge groundwater for the rabi crop. The government pitched in too with a subsidy for seeds. The happy outcome is cereals, lentils and vegetable oil are all poised to better last year’s rabi numbers. Sugar, beset by bad economics and worse politics, is the notable exception. Government granaries, which emptied out 7 million tonnes between June and January, still hold 47.7 million tonnes. This stock ought to rise again after March.
Wholesale inflation, pushed along by food prices from 1.3 per cent in October to 4.78 per cent in November and to 7.3 per cent in December, is decelerating. Rice prices are now rising as fast as the global pace, and sugar and vegetable oil are significantly slower than international inflation. Two of the main drivers of December’s rise — cereals and lentils — are headed for their best rabi performance till date. Fruits and vegetables, the other big riser, are playing out a seasonal aberration. The government’s confidence in asserting the worst is behind us in terms of food inflation is, therefore, not misplaced.
Although the big push to wholesale inflation in December came from a 19.2 per cent rise in the food index, the more significant statistics are the 5.2 per cent rise in the manufacturing index. Industry has thrice the weight of food in the country’s most widely tracked inflation index. And prices are accelerating more on the shop floor than on the farm. At its June 2009 trough food inflation was still a high 10.9 per cent from a year ago, but industrial prices were creeping up at 0.6 per cent. In percentage terms, the price of manufactures poses the bigger worry.
The fuel index also needs to be flagged. It rose 4.3 per cent in December after remaining in the negative for nearly half the year. An international rally in oil and metal prices could take inflation into double digits at just about the time the tide was turning in the battle against food prices.