Knowing More On Reasons For Food Inflation In India

Increases in food prices in the developed world are a source of irritation and dissatisfaction. On the other hand, rising food prices may be the equivalent of going hungry and not getting enough to eat in the poorest parts of the world.

Food costs vary greatly. Agricultural prices are erratic due to inelastic demand and weather-related fluctuations. This article will cover the current situation of food inflation in India. It will also focus on why global prices of edible oils are increasing. 

What is food inflation in India?

According to figures issued by the National Statistical Office, the retail inflation rate jumped to a six-month high of 5.59 percent in December 2021, mainly owing to increases in food costs. Mining and manufacturing outputs were sluggish amid low investment and consumption demand, according to NSO data.

The low base impact and increased food prices pushed up headline retailing inflation, with overall inflation, non-food, non-fuel remaining around 6%, and the telecom price hike’s full pass-through effect. With retail inflation creeping closer to the RBI’s upper tolerance range of 4±2 percent, economists see only a slim probability of a rate hike, particularly in the reverse repo.

In February, India’s headline inflation hit an eight-month high due to rising food costs, with the outlook worsening due to commodity supply delays caused by Russia’s invasion of Ukraine. According to a statement released by the Statistics Ministry on Monday, consumer prices rose 6.1 percent from a year ago. That’s significantly over the Reserve Bank of India’s inflation target zone and quicker than the consensus prediction of a 6% increase in a Bloomberg survey of economists.

Due to the war-related uncertainty, the central bank will likely review its inflation or growth predictions. Although, given policymakers’ commitment to maintaining the economy’s long-term viability, it’s unlikely to drive the RBI to raise interest rates just yet.

Causes of inflation in food items in India

The significant rise in global commodity prices contributes to India’s rising inflation. This is driving up inflation by increasing the cost of imports with some of the essential goods. Brent crude prices surpassed $65 per barrel in May 2021, more often than tripling from the previous year. In April 2021, the cost of vegetable oils, a significant import, soared by 57% to a new all-time high. Metals prices are nearing ten-year highs, while international transportation costs are rising rapidly. The rising WPI trend is showing up in manufacturing costs, notably in the paper, chemicals, and textile sectors, said Dharmakirti Joshi, the Crisil’s Chief Economist.

While currently contained due to declining vegetable prices, food inflation has the potential to rise. Food prices have been steadily increasing all over the world. Due to local lockdowns, Mandi arrivals have been hampered. According to Crisil, consumer durables inflation has picked up steam, with metals as significant production inputs. However, sequential inflation in FMCG, which represents 9% of a CPI basket, has moderated since CY2021. As these are forecasts, things could change.

What is the reason for global prices of edible oils?

Edible oil costs are increasing again after a brief pause. As tensions between Ukraine and Russia grew, Malaysian palm oil contracts hit an all-time peak on February 23. A battle between the two countries, the major producer and suppliers of sunflower oil, may cause a supply shortage in the market, pushing prices even higher. India would be hurt the worst, as Russia and Ukraine account for 90% of the country’s sunflower oil imports.

Since the outbreak of the epidemic, edible oil rates have already been steadily rising globally and in India. The rise has been so rapid that the Indian government has taken several measures to keep costs in check. However, once edible oils’ availability is again disrupted, the government’s interventions will not be sufficient. Read on to learn what sparked the spike in oil price in 2021, how government actions helped slow the rise, why prices are expected to rise again, and this would affect the FMCG sector and end consumers.

Conclusion

According to Crisil, CPI inflation is expected to fall to 5% in the next fiscal year from 6.2 percent last year. This was predicated on lower food inflation, which benefited from last year’s high base, and a regular monsoon. However, inflation risks to the upside are increasing. Supply problems caused by the 2nd COVID wave in rural India also add food inflation in India on top of rising ingredient prices. These are the primary causes behind the shift in forecasts.