Last Friday, the minutes of the monetary policy committee meeting held in October were released. These reaffirm the committee members’ focus on bringing down inflation to the central bank’s target of 4 per cent. Inflation in India had surged in the months of July and August, staying well above the upper threshold of the Reserve Bank of India’s inflation targeting framework. However, in both its August and October meetings, the MPC had chosen to look through this surge, on grounds that it was driven largely by soaring food, especially vegetable prices, which were transitory in nature. The September data, which was released after the MPC’s October meeting, showed that food prices have indeed corrected sharply, vindicating the committee’s decision to maintain status quo.
In July, the consumer food price index had surged to 11.5 per cent, up from 4.55 per cent the month before, as vegetable prices soared. However, in the weeks and months thereafter, prices, especially of tomatoes, corrected just as sharply as they had risen. Vegetable inflation that had touched 37.3 per cent in July fell to 3.4 per cent in September as fresh supplies entered the market. Vegetables have a weight of 15.5 per cent in the food basket and exercise a disproportionate impact on the trajectory of inflation. As per a recent report by Crisil, vegetable prices have been trending upwards in recent years. Between 2019-20 and 2022-23, vegetable inflation averaged 5.7 per cent, up from 0 per cent between 2015-16 and 2018-19. Alongside, the frequency of the price spikes has also increased. As per the report, in the past 100 months, vegetable inflation was above 7 per cent in 35 months, and above 10 per cent in 30 months. The volatility in vegetable prices is in fact much more than that in overall food prices. The report identifies supply-demand mismatches, ups and downs in production, as triggers for these trends.
