Food inflation seen around 10%; milk, veg prices to stay high

Food inflation seen around 10%; milk, veg prices to stay high

New Delhi: Will India’s food inflation continue to stay in double digits after rebounding to 10.05% in the week to 12 March?

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A poll of six analysts and economists shows there might be some softening in the coming quarter as the rabi, or winter, harvest starts, but prices of milk, vegetables, fruits and meat would continue to bite.

“Food inflation may stay around 10% with a downward bias as the harvest in April and May approaches," said Madan Sabnavis, chief economist at Credit Analysis and Research Ltd (CARE Ratings). “But a problem has arisen in fruits, vegetables, dairy products and milk. One has to live with higher prices of these."

Harvest of winter-sown crops such as wheat, mustard and various pulses is likely to be good after heavy monsoon rains last year; their prices are already easing. The latest Wholesale Price Index, or WPI, data show wheat prices have risen by just 2.15% year-on-year, while pulses have actually fallen by 3.78%.

But meat, fruits, vegetables and dairy products could continue to stay high owing to the seasonal factor that sees the summer heat damaging perishable commodities. Fruit prices rose 23.6% year-on-year, while egg, meat and fish were up 13.21%, WPI data shows.

“Essential commodities, be it wheat, sugar, soya oil, have cooled down in the last few months from their highs last year, but there could be pressure from other items including fuel that raises the cost of transporting food," said Amar Singh, head of commodity research at Aditya Birla Money Ltd, forecasting food inflation around 10% for April-June. “Even if inflation does come down from double digits, I do not see it staying there."

Even though vegetables, fruits, milk and meat have smaller weightages in WPI compared with cereals, their sharp price spikes have influenced headline inflation.

While fruit and vegetable prices could stay high owing to the seasonal effect, meat and poultry prices are seen higher because prices of coarse cereals, used as fodder, have gone up on stagnant production and higher demand, analysts said.

Milk and dairy products could retain their price increases because producers generally do not lower prices and consumers tend to adjust to higher prices rather than give up buying these essential items. A change in the consumption trend is also supporting the price increase of protein-rich foods, said Rupa Rege Nitsure, chief economist of Bank of Baroda.

“Changed consuming pattern has created an excess demand for certain food articles such as protein-rich foods, for which there are no immediate solutions," Nitsure said.

“I cannot conclusively say that food inflation is moderating," she added, giving her forecast for food inflation in April to June at 8.5-9%.

But the biggest upward threat to food inflation would come from any signs of a failure in the July-September monsoon that could poise a threat to a bulk of India’s annual agricultural output.

Commodity prices spiralled up after the monsoon in 2009, worst in nearly four decades and any indication of a below-normal monsoon could balloon inflation and curb economic growth as well.

“Any adversity could push food inflation beyond 11%," said K.N. Rahaman, deputy head of research at Way2Wealth Brokers Pvt. Ltd, who forecast food inflation between 9% and 11%.