Food inflation touches 22-month high in June 2016

Food inflation rose to a 22-month high of 7.8 per cent in June 2016 from 7.5 per cent in the preceding month. According to data from Centre for Monitoring Indian Economy (CMIE), inflation rose due to continuous increase in prices of vegetables since April 2016. Prices shot up by 10 per cent in June 2016.

Among vegetables, prices of tomatoes showed an exceptional rise in June 2016. Tomato prices shot from Rs 1,669 per quintal in May 2016 to Rs 2,792 per quintal in June 2016, as per CMIE's data.

This was a result of short supply of the vegetable, as the Rabi crop of 2016 got damaged by severe drought conditions in the southern states. As per the Wholesale Price Index (WPI) data, tomato prices recorded a year-on-year rise of 51.8 per cent during June 2016, as compared to 10 per cent in May 2016. Vegetables like cauliflower, cabbage, potato, radish, garlic and peas also got dearer by 7-17 per cent in June 2016 compared to May 2016.

This might be a temporary spike in vegetable prices, as rainfall this year till 6 July 2016 has been above the long-period average. The India Meteorological Department (IMD) expects rainfall to pick up in the remaining part of July and August, and the entire south-west monsoon season to end with an above-normal rainfall.

Vegetable prices are generally more volatile than other food prices and respond quickly to supply changes.

Pulses and sugar also contributed to the high level of food inflation in June 2016. Inflation in pulses stood at 26.9 per cent in June 2016. Inflation in this group has remained in double digits for over a year now, because of crop failure for two consecutive years.

The area sown under pulses is currently 26.1 per cent higher than a year ago. And, production is expected to rise by 18 per cent to 20 million tonnes this crop year, according to Food Minister Ram Vilas Paswan. In addition to this, the government has, reportedly, contracted 0.6 million tonnes of pulses imports.

This is likely to have a soothing effect on prices of pulses. Inflation in sugar prices rose to 16.8 per cent in June 2016 from 14.1 per cent in May 2016. Sugar prices have been rising due to a 4.8 per cent fall in domestic production of the sweetener during October 2015-March 2016.

To improve domestic supplies, the government has recently imposed 20 per cent duty on sugar exports, but this is unlikely to arrest the upward spiral in sugar prices, as production is expected to fall further during the year.