Chennai: The threat of food price inflation has not waned yet as oil seeds and pulses are still vulnerable to erratic monsoon progression.
Retail food inflation surged from 4.7 per cent in June to 10.6 per cent in July. Apart from a 37.3 per cent surge in vegetable prices, other sub-components like cereals (13 per cent), milk (8.3 per cent), pulses (13.3 per cent) and spices (21.6 per cent) also showed a significant rise.
Food inflation can stay higher over the next few months. Among the crops in jeopardy due to the erratic monsoon progression, oil seeds and pulses stand out as the most vulnerable, finds Care Ratings. Given their relatively high reliance on imports, any decrease in domestic production could potentially expose domestic consumers to fluctuations in the global prices of agricultural products.
A deficit monsoon has adversely affected kharif sowing with a decline in the sowing of pulses (-8.3 per cent), oil seeds (-0.9 per cent), and cotton (-1.8 per cent).
As kharif sowing activity is expected to be over by the end of August, the sowing of these crops is unlikely to improve drastically. A drop in yield due to irregular monsoon and a lower acreage can lead to a demand-supply mismatch, further increasing inflationary pressures in the food basket.
Given their relatively high reliance on imports, any decrease in domestic production could potentially expose domestic consumers to fluctuations in the global prices of agricultural products, finds Care.
The upside risk to food inflation also stems from a 12 per cent month-on-month uptick in global vegetable oil prices, thereby adding to imported inflation. Vegetable oil accounts for 40 per cent of the annual agriculture import bill and almost 55 per cent of the domestic consumption demand is met via import. Over the past few months, the contraction in the domestic price of oils and fats has cushioned the spike in food inflation. Any reversal in the deflationary trend in edible oil will be detrimental to domestic inflationary conditions.
However, the rise in prices of wheat, rice, and coarse cereals tends to be stickier as compared to vegetable prices. Cereals have sustained double-digit inflation over the past six months, and domestic prices of pulses have seen a sharp uptick recently. Thus, a poor harvest of these agricultural products can keep their costs elevated for longer.
