It appears that the common man will have to further tighten his consumption belt. Food inflation in October soared to 10.87 per cent from 9.24 per cent a month ago. Government data released Tuesday showed vegetable prices were the main culprit, as they shot up over 42 per cent in October from a year ago—higher than the 36 per cent rise in September. Coupled with oil prices rising 9.51 per cent, fruits (8.43 per cent), cereals (6.94 per cent) and pulses (7.43 per cent), food prices have played havoc with family budgets. We must remember food items make up about 47 per cent of the consumption basket when calculating inflation.
The surge in food prices pushed up retail inflation to a 14-month high of 6.2 per cent in October, thus breaching the upper level of 6 per cent that the Reserve Bank deems ‘tolerable inflation’. This is bad news for growth, as the RBI is now unlikely to cut interest rates in the immediate future. So it will mean a continuing squeeze on credit supply. The inflation data has taken financial pundits by surprise, as the RBI had earlier changed its monetary policy stance to ‘neutral’ from ‘withdrawal of accommodation’, indicating it might move to a more liberal credit policy. Even core inflation, which excludes food and fuel, rose to a 10-month high of 3.67 per cent driven by rising telecom tariffs and gold prices.
Rising prices, particularly of food, have eroded the purchasing power of the Indian middle class for long now, hurting the sales of goods and services. This has translated to poorer corporate earnings. Maruti Suzuki chairman R C Bhargava has candidly admitted that the demand for cars has dried up; after a two-year dream run, it will be a quiet growth of just 3-4 per cent for the auto industry. Indications are that the RBI’s estimate of a healthy 7.2 per cent GDP growth for 2024-25 may have to be pared down.
While regeneration of long-term consumption is influenced by many factors, the government must take immediate steps to control food inflation. For instance, onion prices, which had been stable for a year, have again shot up because the old rabi crop is exhausted and the new kharif crop is yet to hit the market. Had there been enough buffer stocks released in time, the price spiral could have been controlled.