FM says will decline further, economists warn of structural problems.
Food inflation came back to a single digit once again after five weeks to a four-month low of 9.01 per cent for the week ended November 12, but economists cautioned that structural problems remain in agricultural production and its supply that will keep both the government and the common man on tenterhooks as price pressures will keep shifting gears from one item to another.
For instance food inflation came down by a whopping 1.61 percentage points in a span of just seven days to 9.01 per cent for the week against 10.63 per cent a week ago, but tomato prices rose 98.91 per cent. Even though inflation in tomato was much less than over 138 per cent last week, it still was at elevated level.
Besides, inflation in pulses and milk remained elevated despite some moderation during the week.
Finance Minister Pranab Mukherjee hoped food inflation to cool down further which will have dampening impact on overall inflation.
“If these trends continue for the next two weeks for the month of November, I hope there will be moderation in inflation and it will have an impact on the year-end inflationary figures,” Mukherjee told reporters here. The government expects overall inflation to come down to six-seven per cent by this fiscal end from 9.73 per cent in October.
But, these are headline numbers. Economists said problems in food prices are far from over and inflation may keep shifting from one article to another, given structural bottlenecks.
Eminent agriculture economist and chairman Commission for Agriculture Costs and Prices (CACP) Ashok Gulati said, “When per capita income rises, demand for fruit, vegetables, milk, meat and eggs goes up, but here the supply chain is very weak and dominated by middlemen and commission agents whose profit margins have risen in the last few years.”
Gulati said per capita consumption of cereals goes down with rising incomes, but India’s policy environment is skewed towards promoting more and more cereals production.
He explained that a vital reason for farm commodity prices shifting from one commodity to another are rising labour costs.
“Fruits, vegetable and milk are all highly labour incentive trades,” he added.
In cereals the chances of mechanisation is more and it is happening at a fast pace, but in production of fruit, vegetables and milk it is very less. “So when labour cost moves up, price also rises.”
In the past three years, wages of agriculture labour has risen by 70 per cent so it will definitely have an impact on keeping fruits and vegetables prices at a higher side, economists said.
Unfortunately, all these factors will keep food inflation high for the time being and it won’t fall below eight-nine per cent, he said.
“Also, exports are becoming cheaper due to falling rupee that could lead to a surge in export of farm commodities,” he added.
Badruddin Khan, assistant vice president, agriculture, Angel Commodities, said the price of fruits and vegetables will continue to rise because of sharp mismatch between demand and supply.
In coming months, it is the turn of edible oil and sugar prices to show a rising trend which will nullify whatever impact the falling price of pulses and vegetables will have due to winters, Khan said.
“Global edible oil prices are rising which usually have an impact on India after a lag of two weeks, so we should see a rise in these items in the coming months,” he said.
It should be noted here that edible oil and sugar form part of food products in manufactured items list in inflation data and these numbers are released monthly. Inflation in both edible oils and sugar fell in October compared to the previous month. In case of edible oils, it declined to 13.09 per cent from 13.45 per cent and in case of sugar, it fell to 6.69 per cent from 7.45 per cent.
Anis Chakrabarty, director with Deloitte, Haskins and Sells, said, “Food inflation getting transferred from one commodity to the other indicates that some people are switching cost from one product to the other, which is not really helping the overall inflation numbers.”
