Over the last 12 months, sunflower oil has seen a surge of over 50% across metros (77% in Kolkata), while mustard oil, palm oil and other edible oils now cost at least 30% more. In case of pulses, too, there is pressure with Kolkata seeing a significant increase. Gram dal and tur dal have seen a spike of 25% and 24% in Kolkata over the past one year. It’s a similar story across India.
Latest data on Monday showed retail inflation had surged to a six-month high of 6.3% in May due to higher fuel and food prices and posing a stiff challenge for the Reserve Bank of India (RBI), which is already battling to put growth back on track. The data showed oils and fats jumped 30.8% during the month while prices of pulses and products rose an annual 9.4%.
The build of price pressures has come at a time when the economy is witnessing a sharp slowdown and households are combating reduced salaries, job losses and uncertainty against the backdrop of the second wave of the Covid-19 pandemic.
The flare-up in food prices has taken economists by surprise. Adding to the problem is the increase in core inflation, which is minus food and fuel, while the increase in fuel prices have also added to the price pressures.
“The upside inflation surprise comes when broader price pressures are also likely to build. The June reading is already tracking higher. Our tracker for vegetable prices is already up 7.3% m-o-m (for the first 13 days of June) versus 1.6% in May. Higher global prices continue to push up vegetable oil and beverage prices. On the non-food side, petrol prices are already trending 3% m-o-m higher than in May, even as the government has refrained from revising up LPG prices,” according to a Nomura research note.
“The steady rise in industrial input costs along with evidence of squeeze in manufacturing margins suggests that firms will pass part of the higher cost to consumers. We also expect services inflation to rise as demand recovers alongside the economic reopening. Higher build-up in rural wages and rising inflation expectations are also medium-term risks,” said the note by economists Sonal Varma and Aurodeep Nandi.
The retail inflation data also showed that rural inflation continued to remain high at 6.5% while urban inflation was at 6%. Economists said the high rural inflation was a cause for concern.
Economists expect food prices to moderate as lockdown restrictions ease and expectations of a robust monsoon which could have a calming impact on food prices.
“If the spatial and inter temporal distribution in the months of July-August turns out to be favorable, then kharif sowing activity would get a boost. We believe this will be key in moderating overall inflation vis-à-vis FY21,” according to QuantEco Research.
Trade experts also reckon that prices of edible oil will calm down due to the moderation in global prices which have already started. “By July there could be some cooling in retail prices and by December there could be substantial easing in prices,” B V Mehta, executive director of Solvent Extractors Association told TOI.