Consumer demand is behind the rise in food inflation

Consumer demand is behind the rise in food inflation

Inflation in food products is generally believed to be the result of the drought. The corollary is it’s expected to come down when a bumper harvest comes to the market later this year. Wholesale price inflation data as of 25 September show that inflation in food articles has stood at 8.9% since the beginning of the year. Interestingly, the index for foodgrains (cereals and pulses) is lower on 25 September than it was at the beginning of January. The Fruits and Vegetables Index, however, is up 13.5%. It’s very likely that inflation in these products will come down as the crop comes to the market.

Also See | A shift in food inflation (Graphic)

But why is the price of milk up 13.1% since the beginning of the year? Or why should “fish-marine" or sea fish see prices rise by a huge 35.6%? The price of “inland fish" by which they mean fish from rivers and ponds is up 24.9% over the period from the start of the year to 25 September. Surely the prices of these products have nothing to do with the harvest? Among meat products, the price of poultry chicken is up 18.9%, while that of pork has gone up 11%.

The weight of food articles in the Wholesale Price Index is 14.3%. Milk has a weight of 3.2%, while eggs, fish and meat have a weight of 2.4%. So, the weight of these items within the food basket is not negligible. Also, the index for non-food articles as on 25 September is 11.8% higher than its level at the beginning of January, despite the rise in oilseed prices being minimal. And finally, the Primary Articles Index also includes minerals, the price index for which is up 11% since January.

The data gives rise to two questions. One, what has the price of fish or chicken got to do with a drought? So it isn’t the drought that has pushed up the prices of these products. What it means is the demand for protein-rich food has increased with higher incomes. Consumption demand is, therefore, a potent factor driving up food prices. That conclusion begs the second question: will food inflation then continue to be high even after the kharif (summer) crop is harvested? Since there is no reason for the prices of milk, chicken and fish to come down after the harvest, it’s likely that we’re seeing a structural shift in inflation, one that could keep food prices high.

Graphic by Yogesh Kumar/Mint

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