None of the food items shows signs of softening in the near term, say experts.
A drastic dip in food inflation is unlikely. There are indications that fundamentals will support food prices for the next few months.
Planning Commission Deputy Chairman Montek Singh Ahluwalia recently forecast that food price inflation would decline to six-seven per cent by December. On Thursday, he said this might not happen so soon. The wholesale food inflation rate for the week ended August 28 rose to 11.47 per cent from 10.86 per cent in the previous week.
| COOKING UP A BILL | ||||
| Commodity | Weightage | Price in Jan ‘09 | Price in Sep ‘10 | Change (%) |
| Rice spot# | 2.449 | 26-28 | 34-36 | 23.08 |
| Wheat# | 1.384 | 1182 | 1227 | 3.82 |
| Fruits and vegetables ** | 2.916 | 4130 | 13000 | 214.77 |
| Milk @ | 4.367 | 18 | 23 | 27.78 |
| Oilseeds^ | 2.666 | 2550 | 2600 | 1.96 |
| Sugar^^ | 3.618 | 1978 | 2720 | 37.51 |
| Edible oils* | 2.755 | 500 | 560 | 12 |
| Liquified petroleum gas |
NA | |||
After hitting a high, coarse foodgrain prices have eased a bit, but are still quoting higher. Rice (MP, average quality), after hitting Rs 32-34 per kg in the Vashi wholesale market about two months earlier, has eased to Rs 30-31 per kg. It was Rs 24-26 per kg in January 2009.
Similarly, wheat for near-month delivery on NCDEX is 3.8 per cent higher at Rs 1,227 per quintal as against Rs 1,182 per quintal in January 2009.
Sugar, oilseeds and pulses are still trading at alarmingly high levels. Inflation may not ease until supply adequately surpasses demand and the trend sustains for some time.
“Inflation falling to six per cent by December is not important if absolute prices are still high. On an inflated base, we should not draw solace from inflation coming down. The question is whether prices will revert to the early 2009 levels. In a way, the WPI (wholesale price index) inflation numbers have lost relevance,” said Madan Sabnavis, chief economist, Care Ratings.
Officials in the Commission for Agricultural Costs and Prices say prices are expected to remain high till the supply of foodgrain, especially wheat and rice, is eased further. “Supply constraints and higher raw material costs are primarily responsible for the rise in prices. Labour costs have gone up, along with the cost of irrigation, which is driven by diesel prices. Fertiliser prices are also higher, especially of urea, whose prices rose up to 10 per cent recently,” they added.
Control issues
However, sources in other departments in the agriculture ministry feel market prices are disproportionately higher than the cost of production. They said in rice and wheat, where the government dominates trade, the bigger concern is distribution in the market. The rise in prices of rice and wheat is more due to mismanagement of foodgrain distribution than any cost factor, they say.
Another reason is the ever-increasing minimum support price (MSP), kept higher to keep a few crops lucrative for farmers. Rice, wheat and pulses have a higher weight in primary food articles, which contribute 15 points to the total inflation index. Market prices cannot rule below the MSP, they add.
Officials in the consumer affairs ministry say in the short term, they expect prices of pulses, rice and wheat to remain steady, with a bias towards softening. However vegetable and fruit prices are expected to be volatile for the time being. In oilseeds, even if prices have come down, any forecast is difficult, as the market is dictated by international trends, said officials.
Officials said Food Corporation of India had already started open market intervention in wheat. It has floated tenders for distribution to private traders for both small consumers (three to five tonnes) and bulk consumers. Similar schemes will be soon announced for rice. These will moderate prices, they said.
However, D K Joshi, chief economist (agri research), Crisil, said: “It really does not matter for consumers if inflation goes up or comes down. What matters is the real price of commodities. Barring a few, most are unlikely to decline despite the government’s forecast of inflation falling to six per cent by December from the current level of 10.86 per cent. However, the rate at which commodity prices rose last year would certainly come down with the growth in kharif foodgrain output. A decline in commodity prices will cause a fall in inflation.”
