Meals inflation has at all times been a wild card. In October, meals and drinks element of Client Worth Index (CPI) elevated by 7 per cent yoy. It had averaged 7.6 per cent throughout April-October vs. headline CPI of seven.1 per cent.
From early this yr, varied meals parts have been risky. Beginning with issues of a spike in edible oil and wheat costs (and normally from increased fertiliser costs) after the onset of the Russia-Ukraine struggle, this was adopted by heatwave like situations in March-April impacting wheat output, decrease Kharif crop season (June-September) sowing in rice and pulses, and now the crop injury from very heavy October rainfall in some states.
A number of authorities measures taken embody increased fertiliser subsidy, reduce of import duties on edible oils, ban on wheat and damaged rice exports, export responsibility on non-basmati rice and compensation to farmers for crop injury from current rains (introduced by some states).
A repeat of 2019?
In 2019, meals inflation had risen strongly to 12.2 per cent yoy in December. Its whole sequential momentum throughout July-October then was 4.8 per cent vs. 2.6 per cent this yr.
It was a case of very excessive vegetable inflation then, pushed by a spike in onion costs which had elevated 171 per cent throughout July to December. Inflation in different parts like rice and pulses was not a serious driver.
This yr, cereals have comparatively been a much bigger driver resulting from influence of geopolitical occasions on world costs, decreased home output, and so forth. however total meals inflation did not choose up the best way it did in 2019. That is additionally doubtless as a result of authorities intervention this yr has been a lot stronger, given the character of meals inflation drivers has controllable points in contrast to inflation in perishables (in 2019) which is harder to deal with within the near-term.
Wheat: After procurement of 43 million tonnes in FY22 Rabi Advertising and marketing Season, 19 million tonnes procured in FY23 was 57 per cent decrease year-on-year and vs. the FY23 authorities goal.
Wheat value has risen by 11.6 per cent throughout April-October this yr vs. 3.2 per cent in 2019. Inventory with the Meals Company of India (FCI) has ranged from 0.9-1.1 instances the mandated stage throughout July-November this yr vs. 1.5-1.9 in 2019 (Determine 2).
Though this probably restrains the amount of wheat FCI can promote within the open market to manage costs, if it rises past consolation, FCI estimates wheat inventory as on April 1, 2023 (after assembly all necessities underneath varied authorities welfare schemes) to be 50 per cent increased than the mandated stage.
Rabi season wheat sowing too, as per knowledge on November 11, is up 10 per cent y/y. This might be additional aided by the present wholesome soil moisture and reservoir water ranges (latter 9 per cent above final yr and 19 per cent above regular with all areas reporting a better y/y stage as on November 10). Thus, FCI expects procurement which begins in April to be regular.
Rice: Kharif season sowing of rice was 4.8 per cent under 2021 however 1.5 per cent above the conventional space. Newest official kharif manufacturing estimate is for a 6 per cent y/y drop. Thus, rice value has risen by 8.3 per cent throughout April-October this yr (lesser than wheat) vs. 2.4 per cent in 2019, additionally as a result of rice export remains to be permitted (solely damaged rice export has been banned in contrast to the whole ban on wheat export).
Nonetheless, rice and paddy shares are nonetheless very comfy and has ranged from 2.6-3.5 instances the mandated ranges throughout July-November this yr vs. 2.2-3.5 in 2019.
Procurement of kharif output has began and there might be some hit from extra rainfall within the main producer states like Uttar Pradesh in early October however the extent of injury triggered, particularly to paddy throughout states, just isn’t totally clear. Nonetheless, FCI estimates rice inventory alone, as on April 1, 2023, to be 74 per cent increased than the mandated stage. Additional, real-time knowledge suggests common value until date in November has fallen barely under the October stage, the primary m/m drop in seven months.
Pulses: Kharif sowing of pulses was 4 per cent down y/y however the authorities estimate of manufacturing is flat from 2021, though the hit from final month’s extra rain is to be ascertained. Though rabi sowing of pulses is down y/y, that too solely marginally by 1.4 per cent as on November 11, sowing for the primary sub-categories of gram and lentil is in actual fact up. Once more, present wholesome soil moisture and reservoir stage ought to assist right here. Costs have risen solely by 3.6 per cent throughout April-October this yr (vs. 8.5 per cent in 2019) and value development within the newest CPI print for October has moderated.
Oils and fat: The import responsibility reduce by the federal government has benefited this class and costs of edible oils have sequentially fallen from June to October. The import responsibility reduce has now been prolonged until March 2023.
Greens: Tomato value has been very risky however knowledge suggests it has been falling in November after rising sharply within the earlier two months. Development in potato value, already reasonable, has been easing a bit in November and the brand new crop harvest might hit the market by subsequent month. Onion value has picked up (13.3 per cent in November on the time of writing) however that is nowhere near that in 2019.
Vegetable costs are sometimes risky but when moderation in sequential development from the beginning of this month is adopted by the seasonal winter deflation, or even when it occurs after a consolidation part in costs, it might assist drive meals inflation decrease.
Different meals objects: Worth development in protein meals sources corresponding to meat and fish, eggs and milk have remained reasonable. In current months, value momentum has been under that prompt by historic seasonal tendencies. Costs of fruits have additionally fallen within the final three months and in 5 out of the final six months.
Development in farm enter price has begun to reasonable in keeping with oil value development. This, as calculated by RBI, is a weighted common of yoy development in 5 related WPI parts. Amongst these, excessive velocity diesel and electrical energy are two main inputs and each have moderated. This augurs properly, ceteris paribus, for softer incremental meals value development.
Meals costs have been risky this yr resulting from geopolitical developments and home manufacturing points. Nonetheless, that is completely totally different from 2019 when spike in onion costs had dominated meals inflation for a number of months.
Authorities intervention can be a lot stronger this time. Costs of cereals, notably of wheat, have been of concern in 2022 however there may be potential for some incremental moderation in development. Rice shares stay fairly comfy too.
Costs of sure pulses, greens, and so forth. have additionally eased a bit from early November, though it stays above October ranges. Farm enter price development has been falling since July. Extra rainfall in October could have its influence however the above early indicators are encouraging and must be watched carefully.
(Sreejith Balasubramanian is an economist (fund administration) at IDFC AMC)