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Retail inflation: The big worry — Spike comes in wake of global increase in food prices

The UN Food and Agricultural Organisation’s Food Price Index (base year: 2002-04 = 100) averaged 181.7 points in December 2019, the highest since the 185.8 level of December 2014.

Written by Nushaiba Iqbal | New Delhi | Updated: January 14, 2020 9:00:12 am
food price rise, retail inflation, food inflation, retail inflation on food prices, retail inflation food prices, spike in food prices, economy news, business news, Indian Express Although nowhere close to the all-time high of 240.1 touched in February 2011 — that was at the height of the global commodity boom — it is still a 21.7 per cent jump over the low of 149.3 in January 2016.

Consumer food price inflation has hit 14.12 per cent year-on-year in December 2019, the highest after it touched 17.89 per cent reached more than six years ago in November 2013. The rise is recent and sharp — from a mere 2.99 per cent in August to 5.11 per cent in September, 7.89 per cent in October, 10.01 per cent in November and 14.12 per cent in December.

While this was expected, given the seasonality of vegetable prices, what would concern policy makers is that the spike comes alongside a global upswing in food prices. The UN Food and Agricultural Organisation’s Food Price Index (base year: 2002-04 = 100) averaged 181.7 points in December 2019, the highest since the 185.8 level of December 2014.

Although nowhere close to the all-time high of 240.1 touched in February 2011 — that was at the height of the global commodity boom — it is still a 21.7 per cent jump over the low of 149.3 in January 2016.

The simultaneous hardening of international prices poses a challenge to the government and the Reserve Bank of India in containing domestic food inflation at a time when the economy is already going through a deep slowdown. The latest overall retail inflation at 7.35 percent, too, is above the Reserve Bank of India’s upper band target of 6 per cent — the first time since August 2014.

Global food price index rises too

The rise in food inflation over the last three months or so has been viewed as transitory, driven largely by the damage to the kharif crop from prolonged unseasonal rains during September to early November. These excess rains have, however, helped recharge groundwater aquifers and fill the country’s major dams to near-full reservoir levels, thereby boosting plantings of the winter/ spring rabi crop due for harvesting from end-March.

But rising global prices can potentially undermine the assumption of food prices cooling off after March, which also complicates RBI’s efforts at monetary easing to address the ongoing slowdown.

According to FAO, the 12.5 per cent annual increase in its Food Price Index in December has been led mainly by edible oils (30.9 per cent), meat (18 per cent) and dairy (17 per cent).

Interestingly, on January 8, the government banned import of RBD (refined, bleached and deodourised) palmolein and palm oil by moving these from the “free” to “restricted” category. The government is also under pressure to open up imports of skimmed milk powder, following a more than doubling of domestic prices to Rs 300-320 per kg in the last one year.

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