Food prices soar to 23-month high, inflation doubles but there’s good news: the monsoon to bring relief

The reason for high inflation is the base effect and spike in prices of vegetables and pulses.

Written by George Mathew | Published: August 16, 2016 3:46 pm
inflation, food inflation, price rise, wholesale price inflation, price inflation, vegetable price rise, pulses price, pulses price rise There are indications, however, that the prices of vegetables are moving downwards. (Source: File)

While the latest data shows that wholesale price inflation (WPI) increased to a 23-month high of 3.55 per cent in July — from 1.62 per cent in June — as vegetables, pulses and sugar turned costlier, there are indications that prices may moderate in the near future.

The reason for high inflation is the base effect and spike in prices of vegetables and pulses. The sharper-than-anticipated increase in food prices has pushed up the projected trajectory of inflation over the rest of the year. Prices of pulses and cereals were rising and services inflation remains somewhat sticky. The partial delay in the monsoon over many parts of the country also delayed the sowing of the kharif crop.

There are indications, however, that the prices of vegetables are moving downwards. “Going forward, the strong improvement in sowing on the back of the monsoon’s steady progress along with supply management measures, augers well for the food inflation outlook,” said the Reserve Bank in its latest monetary policy review last week. The RBI looks at consumer price inflation (CPI) while formulating its policy, saying CPI inflation is a better indicator than the WPI.

The outlook for food prices is also encouraging. First, progress of pulses sowing has been very good (+40 per cent year-on-year) and should ideally result in a bumper crop. Historically, it has been observed that a sharp improvement in pulses results in this component being in deflation for some time.

Second, international food prices have started to soften with corn, wheat and soyabean all correcting by 15-20 per cent in the past one month. Third, petrol and diesel prices have been cut in August with perhaps more to follow. Fourth, post August, the adverse base will start reversing and also help push inflation lower.

The good monsoon this year will provide much needed relief. “We expect pulses and vegetables inflation to cool off. The moderation in food inflation should result in CPI being below 5 per cent by March 2017,” said a report by Edelweiss.

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  1. S
    SubbuI
    Aug 16, 2016 at 3:24 pm
    Hope for best. Let nature takes care of India . We don't trust FEKU will do any thing good to nation, other than bashans and PROBAA FOR SELF MARKETING!
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    Reply
    1. ashok kumar
      Aug 16, 2016 at 4:35 pm
      can you answer my basic question . How come one in four musalman is a criminal today. Rest few are actors
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      Reply
      1. A
        Arun
        Aug 16, 2016 at 10:35 am
        MOdi ki jai
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        Reply
        1. S
          sunny
          Aug 17, 2016 at 5:26 am
          These are RSS propaa. like Muslim having 4 wife , check statics Hindus are also equally practicing. If there is one Dawood, Chota Rajan is his counterpart.There are so many Musilm, christian, Hindu criminals.Hindu religion preach tolerance, Christian LOve and Islam brotherhood. All are good for human survey , but criminals is not bothered about any religion.
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          1. S
            sunny
            Aug 16, 2016 at 3:08 pm
            You are absolutely correct. In that case first you people should go to your orginal land Asia Minor region and lead a nomadic life as your great GF
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