Home / News / India /  Lemon and melon, the villains of April inflation

Lemon, subsidized kerosene and muskmelon witnessed the quickest acceleration in inflation last month, a Mint analysis showed, as 80 items in the retail basket recorded double-digit inflation, the highest since the pandemic outbreak.

The retail inflation basket has 299 items, and last week’s official data showed their overall prices on average rose 7.79% in April, an eight-year high.

The surge in inflation was led by a sharp increase in food and fuel prices. The impact of some of the items, inflation for which escalated in April as against March, remained fairly muted due to their low weight in the Consumer Price Index (CPI) basket.

Source: CMIE
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Source: CMIE

Lemon prices shot up 66% from a year earlier, 55 percentage points above the pace in March.

Muskmelon, which was in the deflation zone in March, witnessed an on-year price rise of 16%.

Subsidized kerosene sold through the public distribution system recorded the steepest inflation rate of 91% among the items captured in the CPI, up from 65% in March. Tomato, stove and gas burner, petrol, and diesel were the other items that recorded a steep price increases compared to March.

Over 42% of items in the CPI basket recorded inflation higher than the headline print of 7.79%. Nearly 60% recorded inflation higher than 6%, a pandemic-era high. Even if four items—lemon, tomato, kerosene and petrol—weren’t part of the CPI basket, retail inflation would still have been close to 7%, a number high enough to keep the Reserve Bank of India (RBI) on its toes this year.

While these items take up little space in the CPI basket, which is a decade old, consumers, especially the poor, may struggle to manage as prices rise.

Overall vegetable inflation shot up to 15.4% from 11.6% the previous month, adding about 50 basis points to the headline inflation.

One basis point is one-hundredth of a percentage point.

“Inflation burden on the poorer segments depends more on food and fuel inflation. Hence, rising food prices and elevated fuel inflation in fiscal 2022-23 will pinch the poorer population more," said Crisil in a note last week.

Several economists noted retail inflation is increasingly becoming broad-based, while risks from weather-related disruptions are far from over.

Lemon and muskmelon prices shot up in the market as extreme heat damaged crops in several parts of India, while fuel prices faced upward pressure from higher crude oil prices amid the ongoing Russia-Ukraine war.

In a bid to tame inflation, the Monetary Policy Committee (MPC) raised the repo rate by 40 basis points in a surprise move earlier this month which, according to economists, is just the beginning of policy normalization.

The monetary policy panel is expected to raise up to 75 basis points of the repo rate as soon as August, reversing the cut announced at the outbreak of covid-19 pandemic to support growth.

“We see the Reserve Bank of India raising the policy rates to 5.15% by August and expect it to reassess the macroeconomic momentum to gauge the need for further hikes beyond that," Barclays said in a note.

However, it is highly likely that inflation will remain above the upper tolerance limit of the Reserve Bank’s 6% until September, which would mean the failure of the rate-setting panel to keep inflation under control. Inflation has been above 6% since January.

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