Onion price surge likely to affect September inflation figures

Onion prices which have spiked more than 200 per cent are likely to thrust the headline inflation to its highest level in more than a year, but may not goad the Reserve Bank of India (RBI) into further rate cuts.

The consumer prices probably went up by 3.8% in September (2019) from last year (2018) which is the highest since July 2018.

The surge in the staple prices may add at least 30 basis points (bps) to September's Consumer Price Index (CPI) inflation, showed a Bloomberg survey ahead of CPI numbers due later Monday.

Also Read: Onion nears Rs 80 per kg in Delhi, Mumbai; prices likely to remain high for a month

"Consequently, we expect the spike in onion prices to contribute about 30 basis points to headline inflation," Teresa John, an economist at Nirmal Bang Equities Pvt. in Mumbai told the news agency.

Although the inflation has remained flat in recent months, the CPI rose marginally to 3.2% in August.

Onion which has a weightage of 0.6% in the overall inflation basket contribute nearly 10% to the vegetable basket. The RBI expects food prices to stabilise and predicts headline inflation to remain much lower than its medium-term target of 4% for the rest of the fiscal year.

Also Read: Infographic: Why onion prices have shot through the roof

Onion, as well as tomato prices, skyrocketed from Rs 7 per kg (Mumbai retail prices) in January to Rs 80 per kg in September this year owing to heavy rains which damaged crops and hindered supplies. Tomato prices too more than doubled to Rs 60-70 per kg in the past two weeks.

The steep rise in the staple's prices drove the government to impose a minimum export price (MEP) of $850 a tonne on September 15. This was followed by an export ban and imposition of stock limits. The government enforced a stockholding limit of 50 tonnes and 10 tonnes for wholesalers and retailers respectively.

Also Read: Will rising oil and onion prices topple inflation estimates?