Inflation: FinMin cautions about price pressures amid uncertainties
Virendra Pandit
New Delhi: Recent inflationary trends in prices of essential commodities, including tomatoes and onions, have prompted the Finance Ministry to caution the people that these pressures may remain in the months ahead and require greater vigilance.
In its monthly Economy Review report for July 2023, released on Tuesday, the ministry said the government’s pre-emptive steps to contain food inflation should soon help reduce market prices.
Inflationary pressures, caused by global uncertainties, inclement weather, and domestic disruptions, may continue for the next few months and require the government and the Reserve Bank of India (RBI) to be more vigilant.
A recent surge in vegetable prices drove India’s headline retail inflation to a 15-month high of 7.44 percent in July, from 4.87 percent in June.
“Global uncertainty and domestic disruptions may keep inflationary pressures elevated for the coming months,” it said.
“The price pressure in food items is expected to be transitory, as evident in the steady performance of the agriculture sector, along with fresh arrivals in the market,” it said, as tomato prices eased after rocketing to Rs. 300 per kg and then falling to just Rs. 50 now as new arrivals hit the markets.
Weather fluctuations also added to the price woes. While some states received excessive rainfall this season, others still await good monsoon showers. This month, India is bracing for its driest August in over a century, with scant rainfall likely to persist across large areas, partly because of the El Nino weather pattern.
Last weekend, the government imposed a 40 percent duty on the export of onions to check the price rise and improve supplies in the domestic market until December 31, 2023. In July, it banned the export of non-basmati white rice. In 2022 also, it banned wheat exports to stock up commodities for the domestic market.
The unexpectedly high increase in Consumer Price Index (CPI) inflation prompted the government to take more action to check the rise in prices of key food items. These steps included a 40 percent export duty on onion to discourage exports and ensure sufficient domestic supply.
According to market experts, CPI inflation may remain above 7 percent in August, although some of the prices ebbed after the government organized the sale of tomatoes at discounted prices in key consumption centers.
With the festival season commencing in the coming weeks, inflation may decline rapidly with some experts seeing it below 5 percent by October.
But, until then, the prices may remain high. On August 10, while the RBI’s Monetary Policy Committee (MPC) left the policy repo rate unchanged at 6.5 percent for the third meeting in a row, the central bank raised its inflation projection for July-September by 100 basis points to 6.2 percent.
“However, the recent price spike of certain food items is expected to be transitory. Tomato prices are likely to decline with the arrival of fresh stocks by the end of August or early September. Further enhanced imports of tur dal are expected to moderate pulses inflation. These factors, along with the recent Government efforts, can soon materialize moderation in food inflation in the coming months,” the ministry’s report added.
