A 10.9% spike in food prices lifted India’s retail inflation to a 14-month high of 6.2% in October, from 5.5% in September, with prices of vegetables and edible oils escalating at a sharp pace not seen in recent years. 
| Photo Credit: Sushil Kumar Verma

A 10.9% spike in food prices lifted India’s retail inflation to a 14-month high of 6.2% in October, from 5.5% in September, with prices of vegetables and edible oils escalating at a sharp pace not seen in recent years.

October’s price rise pace marked a breach of the Reserve Bank of India’s (RBI’s) upper tolerance limit for inflation, with rural India facing a sharper uptick of 6.7%, while urban consumers encountered an inflation of 5.6%, scotching any hopes of an interest rate cut from the RBI in its December monetary policy review.

Rural food prices were 10.7% higher, while food inflation in urban India was even higher at 11.1% this October, with prices rising nationally at the fastest clip since July 2023. Vegetables Inflation bounced up from 36% in September to a 57-month peak of 42.2% in October, while edible oil prices shot up 9.5%, the highest spike in nearly two years, from about 2.5% in the previous month.

Fruit prices also hardened by 8.4%, although pulses inflation eased to 7.4%, after 17 months of double-digit rise in prices. Spices prices dropped 7%. In October, households also faced a sharp 11% rise in costs of personal care and effects, up from 9% in September.

Terming the consumer price inflation pace shocking, Bank of Baroda chief economist said food inflation has spread to oils, and the basket of cereals, pulses, fruits, vegetables and oils are the problem areas.

“Inflation may recede albeit gradually for cereals and pulses but will take longer for vegetables. Core inflation also has upward bias with personal care products showing higher inflation as input costs are transmitted,” he pointed out, stressing that this will ensure that a December rate cut is out of consideration.

The RBI had projected an average inflation of 4.8% for the October to December quarter or the third quarter (Q3) of 2024-25, before declining to 4.2% in the final quarter. However, for that arithmetic to hold after October’s CPI spike, price rise would have to soften to about 4.1% through this month and December.

Core inflation that excludes food and energy prices, also saw a mild rise from September’s estimated nine-month high of 3.8%, but remained under 4% for the 11th successive month, economists reckoned.

“The surge in edible oil inflation in October was driven by a steep 27% rise in global prices due to supply disruptions in Southeast Asia. Though non-food inflation remains benign around 3%, the recurring flare-up in food inflation has kept headline inflation elevated and creates an upside risk to the inflation trajectory – restricting the easing in monetary policy,” said Crisil chief economist Dharmakirti Joshi.

Mr. Joshi expects the RBI’s Monetary Policy Committee to cut rates towards the end of 2024-25, with food inflation likely to recede due to the healthy kharif sowing and fresh stocks of vegetable prices entering the market.

“High food inflation in October, 2024 is mainly due to increase in inflation of vegetables, fruits and oils and fats,” the National Statistical Office said, while noting a “significant decline in inflation” in Pulses, Eggs, Sugar, and Spices.

Compared to September, the CPI rose 1.3%, with a slightly higher uptick of 1.42% in rural India. However, the Consumer Food Price Index (CFPI) was up 2.6%, with rural and urban areas facing the same spike in costs.

A scene at wholesale vegetable market Azadpur Mandi, in New Delhi. File
| Photo Credit: Sushil Kumar Verma

Retail inflation resurged in July to hit 7.44% from 4.87% in June, with consumers facing a sharp 11.5% spike in food prices. This is the highest pace of retail inflation since April 2022 and the first time since September 2022 that price rise has been over 7%.

Vegetable prices soared 37.3% while cereals and pulses became over 13% costlier, lifting the food bill by over 12.3% for urban consumers, while rural consumers encountered 11% food inflation. Rural residents however faced a higher overall inflation rate of 7.63% in July, as per the National Statistical Office. The Consumer Price Index was up 2.9% from June’s levels, while food prices were up 6.7% month-on-month.

July’s inflation print, which surpassed most economists’ estimates, breaks a four-month streak below the central bank’s 6% tolerance threshold for consumer price rise and threatens to upend its recent 6.2% average inflation projection for the July to September quarter.

A slight let-up in tomato prices this month may help cool the inflation trend a little in August, but elevated pulses, spices (up 21.6%), milk (up 8.34%) and cereal prices remain a concern along with a below-normal monsoon outlook for this month and patchy progress on the crop sowing front.

“In its latest credit policy, the Reserve Bank of India [RBI] said it will be ready to act if conditions warrant action. Would 7% inflation for two successive months cause the trigger to be pulled?” said Bank of Baroda chief economist Madan Sabnavis. An interest rate hike cannot be ruled out even though its probability is still low, he noted.

However, hopes of interest lower rates may be deferred further, with rating firm ICRA expecting the earliest cut around the second quarter of 2024-25 with “a fairly shallow” rate cut cycle of about 50-75 basis points from the current levels. One basis point equals 0.01 per cent.

Wholesale prices

Wholesale prices remained in deflationary mode for the fourth month in a row in July, but prices of food and primary articles spiked by over 7.5%, narrowing the overall price dip sharply to -1.36% from the 92-month low of -4.1% recorded in June.

At the wholesale level, inflation in primary food articles hit 14.3%, the highest in almost a decade with vegetable prices shooting up 81.1% in July, compared to June, and 62.1% higher than a year ago. Milk, wheat and cereals prices spurted over 8% year-on-year, while pulses and paddy prices rose over 9%.

Within food articles, potato and fruits were the only items to cool from last July’s levels, dropping 24.4% and 8.9%, respectively, but potato prices were 8% higher compared to June. Onions also became costlier, rising nearly 28% from June 2023 and 7.13% from July 2022. While these spikes were offset somewhat by lower wholesale prices for non-food items, there was no such relief at the consumer price level.

The only major relief for consumers came from edible oils, whose prices dropped 16.9% in July, even as rise in spends on personal care and effects remained sticky at 9% and healthcare inflation remained virtually unchanged from June’s 6.2% mark.

“The data for food prices for early August are not very promising, and we expect the headline CPI inflation to print above the 6.5% mark in August, before cooling off materially in September,” reckoned ICRA chief economist Aditi Nayar.

“While the vegetable price shock may not reverse adequately before the next harvest, rainfall has been deficient in August so far, which is likely to put upward pressure on food prices, amid the lags in kharif sowing across some crops,” she added.

The Wholesale Price Index (WPI) moved up almost 2% from June’s levels, with primary articles rising over 8% and the Food Index up a sharp 7.1%. Manufactured products’ prices fell 2.5% while fuel and power prices fell a sharp 12.8% year-on-year, but on a sequential basis, the deflation in these two segments was just 0.3% and 0.5%, respectively. More than 80% of the uptick in headline WPI in July vis-à-vis June was driven by primary food articles, ICRA said.