‘Persistent heat may singe RBI’s inflation hopes’

By admin Jun28,2024

The persistent heat wave in some States that are also major producers of tomato, onion and potato (or TOP vegetables), is likely to keep food prices elevated for a few more months, and could push retail inflation beyond the Reserve Bank of India’s projections for the first two quarters of this year, economists at Bank of Baroda said on Thursday.

Arrivals of these key vegetables into mandis have dropped significantly in the April to June quarter, with potato supplies down 12.3%, onion 29.1%, and tomato 18.5%. This has triggered a sharp price spike, with onion prices up 89.4% in this quarter compared with last year, potato prices up 81.1% and tomato rising 37.6%.

In a report ‘India’s ongoing heatwave’, the bank’s economists Aditi Gupta and Dipanwita Mazumdar said they do not foresee food inflation dipping below 7.5%-8% in the next two-three months. Weather vagaries could lead to Consumer Price Inflation overshooting RBI’s projection of consumer prices rising by an average 4.9% between April and June and 3.8% in the July-September quarter, they reckoned. 

Uttar Pradesh, the largest potato producing State, has seen a notable production decline this quarter, while market arrivals of onion from Madhya Pradesh have dropped, amid heatwave conditions in both States. Tomato arrivals in Karnataka and Andhra Pradesh and Gujarat have also fallen considerably, while the decline is sharper in MP and Odisha between April and June, the report noted.

“The heatwave in the country seems to be persisting longer than usual with IMD [India Meteorological Department] alerts for certain northern States and Eastern part of India still continuing. These are also major TOP producing States. Further, harvesting period is also nearing its end, so there will be a lag in fresh arrivals,” the economists pointed out.

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