After 3 months of deflation, wholesale food prices may turn inflationary

Vegetable deflation rate in September narrowed to 3.83 per cent year-on-year from 20.18 per cent the previous month

After 3 months of deflation, wholesale food prices may turn inflationary

Vegetable deflation rate in September narrowed to 3.83% year-on-year from 20.18% the previous month.

Price trends in food articles, as measured by the Wholesale Price Index (WPI), remained in the negative zone in September for the third straight month. 

This implies that the prices of major kharif pulses, along with vegetables and fruits, fell sharply during the month, compared to the same month last year. 

However, there might be an uptick in food prices, turning WPI trends from deflation to inflation — though there is not much clarity yet on the rate and duration of the uptick. 

The rate of WPI-based deflation in food articles came down from 4.04 per cent year-on-year in August to 0.21 per cent in September this year, mainly on account of an upward movement in vegetable and fruit prices in these two months. 

Deflation in vegetable prices narrowed to 3.83 per cent from 20.18 per cent in August, while the same on fruit prices declined to 7.35 per cent in September, from 16.4 per cent in previous month. 

The deflation rate in pulses, another big item that pulled growth for the whole food articles category on WPI into the negative territory, widened to 18.14 per cent in September from 14.26 per cent in August.

The prices of most kharif pulses, along with oilseeds and cereals, are ruling much below their state-mandated minimum support price (MSP) for the 2018-19 kharif season. Clearly, the deflation rate in fruit and vegetables is narrowing, while the rate in pulses is not showing much change. 

A growing number of experts and market watchers and economists feel that WPI-based inflation in food articles might now show an upward movement. However, the rate and duration of the inflation rate remain unclear. 

It is also unclear whether any rise in WPI for food articles could turn into actual gains for farmers, who have been reeling from the impact of consecutive years of low prices. This is because evidence shows that any benefit of the increase in food prices does not reach farmers because of fragmentation in markets. 

In most cases, it is wholesalers and middlemen who garner the benefits of a price increase. So, even when the gap between retail and wholesale rates widens to over 50 per cent in some cases, farmers remain in distress. 

In India, as far as food inflation is concerned, things can change in a matter of weeks. A price spike in one or two food items could push food inflation numbers from the benign levels at present, said Aditi Nayar, principal economist, Icra. 

According to experts, any rise in WPI will also depend on the government’s expanded procurement of non-wheat and rice commodities under Prime Minister Annadata Aay SanraksHan Abhiyan (PM-ASHAA).

The Centre’s latest guidelines on the scheme do not provide for a support of more than 25 per cent of the total production under all three components — the Price Support Scheme, Price Deficiency Payment Scheme (PDPS), and pilots on the involvement of private sector in procurement. 

The latest report by the Commission for Agriculture Costs and Prices (CACP) for 2019-20 rabi marketing season shows that despite expanded procurement in the past few years, less than 60 per cent of farmers growing the crop have actually benefitted from the operations. 

“WPI growth in food articles is in for a slight uptick in the coming months on the back of a weak base and also because of the government’s proposed procurement drive. The extent of the increase will need to be seen,” CRISIL Chief Economist D K Joshi told Business Standard. 

CARE Ratings Chief Economist Madan Sabnavis, however, said food prices would surely show a rise in the coming months, and a big reason for that would be a rise in vegetable rates, as the production of some kharif crops had not been up to the mark. 

The Monetary Policy Committee (MPC) has noted that the outlook for food inflation going forward is expected to be benign, although the impact of the increase in the MSP announced in July remains somewhat uncertain.