Despite confident officialese that inflation has been tamed, the latest National Statistical Office figures show the scare is on the growl again. Retail inflation measured by the consumer price index (CPI) climbed to its highest this calendar at 5.49 percent, rising from 3.65 percent in August.
Though it’s still within RBI’s tolerance range of 2-6 percent, there is growing concern at the persisting food inflation, which shot up to 9.22 percent from 5.66 percent in the preceding month. Wholesale inflation, a reflection of prices at the point of production, also rose to 1.84 percent in September from 1.31 percent in August. The impact of high food prices can be gauged from the fact that though fuel and power—the other significant drivers of inflation – fell 4.05 percent in September, the CPI still moved up.
We must remember food items have a high weightage of 46 percent in the basket of commodities that determines inflation. Within the food basket, the sharp rise in the prices of pulses (9.8 percent), fruits (7.65 percent) and vegetables (36 percent) was mainly responsible for the skew.
Onion and potato prices rose by 79 and 78 percent year-on-year. Despite a reasonably above-normal monsoon, the continuing high food inflation has now eclipsed any scope for a bank rate cut in the October-December quarter. So, the tight credit scenario is likely to continue into the next calendar.
High prices of onions and tomatoes usually follow seasonal shortages. Supply bottlenecks have more to do with storage and distribution breakdowns, rather than production shortfalls. Onions, of which India is the second largest producer at 30 million tonnes a year, have seen a cyclical rise and fall in prices; the government tries to balance it by banning exports for a while.
Often, the delay in a new crop reaching the markets creates an artificial shortage and a consequent price rise. The government, working with farmers’ cooperatives, must ensure efficient logistics so that supplies are evenly spread and stocks safely warehoused.
For fast-perishing vegetables, freezer warehousing and cold chains can ensure year-round supplies at optimum prices for both farmers and consumers. These have often been spoken about. Fixing them soon would go a long way in lowering a spectre that has been haunting the economy.