Food inflation: Pulses, oil offset pressure from onions, tomatoes

The inflation number was broadly in line with what the RBI had assessed in its latest monetary review

Barring onions and tomatoes, prices of many other food items, particularly of pulses, ruled much below last year's level, bringing down overall food inflation 1.25 per cent in September from 1.52 per cent in August. 

The inflation number was broadly in line with what the Reserve Bank of India (RBI) had assessed in its latest monetary review. 

For consumers, this was good news ahead of Diwali. But for farmers, it meant another year of low prices, which is bound to aggravate rural distress. 
 

A more-than-expected drop in demand and good carryover stock from last year is checking the effect of any drop in production this year, denying farmers any benefit from perceived supply fall. As such, deflation or price fall year-on-year, especially in pulses, persisted till September. 

Official data show deflation in tur (red gram) in September was 34.2 per cent, despite an 18.3 per cent drop in kharif sowing and a 16.2 per cent estimated fall in output by the first advance estimate. A drop in production should have led to higher prices but lower and carryover stock, aided by import, is keeping retail prices down. This is also true for moong (green gram), where despite an 18.5 per cent fall in kharif production from last year, prices haven’t shown a rising trend.

Among cereals, deflation was close to three per cent in maize during September, despite a four per cent drop in sowing.

Groundnut oil prices fell despite almost a 12 per cent drop in acreage, due to carryover inventories in other supplementing oils and also low global prices which neutralised the impact of higher duties. Earlier this year, the commerce department had announced an increase in tariff on crude and refined edible oil to 15 per cent and 25 per cent, respectively, from 7.5 per cent and 15 per cent earlier.

In its October policy review, the RBI had said its assessment of food prices was largely favourable, though the first advance estimate of kharif production posed some uncertainty. 

However, it had also said that early indicators show prices of pulses, which had declined significantly to undershoot trend levels in recent months, had begun to stabilise. 

But, prices of pulses in fact continued to fall in September year-on-year. 

Devendra Pant, chief economist at India Ratings, said pulses have been witnessing deflation year-on-year but month-on-month prices were stabilising. 

For instance, CPI stood at 117.3 points in September compared to 117.9 points in the previous month.

The southwest monsoon this year was five per cent below normal. According to the first advance estimate, foodgrains production in the 2017-18 kharif sowing season was 134.67 million tonnes, about 2.8 per cent less than the fourth and final estimate of the previous year.

Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, said food inflation would be a positive surprise for many. 

Others also feel RBI’s inflation assessment might be on track. Madan Sabnavis, chief economist at CARE Ratings, said inflation would be more from non-food items than from food in the coming months. 

However, onion prices have almost doubled in recent weeks, he noted. Onion has 0.64 per cent weight in the Consumer Price Index. Inflation in onion rose to 57.28 per cent in September from 49 per cent in August.