Here’s why food inflation may remain sticky

Headline retail inflation is expected to ease to less than 6 per cent in September as vegetable prices moderated but, concerns over price pressures remain because of high prices of non-perishable food items such as cereals, pulses and spices, apart from rising onion rates.  

Retail inflation eased to 6.83 per cent in August from a 15-month high of 7.44 per cent in July. This was aided by a significant cooling off in vegetable prices, where retail inflation eased to 26.14 per cent year-on-year in August from 37.34 per cent in July. 

However, food inflation cooled only marginally to 9.19 per cent in August from 10.57 per cent in July as retail inflation in pulses, cereals and spices continued to remain in double digits in August despite a slight moderation.  

Consumer price index-based inflation in cereals stood at 11.85 per cent in August as against 13.04 per cent in July. Similarly, retail inflation in cereals was 13.04 per cent in August versus 13.27 per cent in July while in spices it was at 23.19 per cent last month compared to 21.63 per cent in July. 

Retail inflation in onions was at a high of 23.18 per cent in August from 11.78 per cent in July. Analysts highlight that onion prices too have continued to rise in September.  

“September thus far has seen onion prices rising significantly, albeit much less than the tomato price spike, and overall food inflation will be lower as the full impact of lower tomato prices is felt. There is a worrying trend in food inflation, with sustained inflation for non-perishables (pulses, cereals, spices) keeping overall inflation elevated even as transient price spikes for perishables fade,” said a note by Emkay Global Financial Services, adding that this requires robust supply-side policies, but will take time to impact the market. 

In a note, Quanteco Research said that dwindling stocks of wheat with Food Corporation of India, anticipated shortfall in Kharif paddy yields and annualised decline in area sowing under Kharif pulses this year are factors that could add to price pressures, unless acted upon with mitigating measures. 

However, going forward inflation is expected to ease in September as the full impact of the fall in tomato prices is felt along with the Rs 200 cut in the retail price of LPG cylinder. “We estimate a reprieve of nearly 30-35 bps from the measure. Despite the expected incremental solace on subsequent CPI inflation reading, we estimate average Q2 FY24 CPI inflation to overshoot RBI’s estimate of 6.2 per cent by 40-50 basis points,” said Quanteco Research. 

Emkay Global Finance Services also said the impact of the Rs200 per cylinder cut in LPG prices will likely reflect in the September CPI print, and may shave off 20-25 basis points from the headline rate.