In March 2023, annual retail food inflation in India went down up to 4.79 per cent, and this was seen by many as a sign of relief. If that were the case, why does the average consumer continue to complain about high food prices?
Most Indians do not clearly understand this issue.
The Central Government releases Consumer Price Inflation (CPI) data every month. If inflation is below 6 per cent, there is a palpable sense of happiness and satisfaction. TV business channels have jumped in to discuss the possibility of a reduction in the Reserve Bank of India’s (RBI) policy rates – which have been hiked by 250 basis points from May 2022.
One reason for this disconnect compared to the interpretation of the CPI is that the inflation data most widely discussed by the public is in an annual context, where the price trend is compared to the same month in the previous year. Let us now turn to the inflation data for March 2023 (Figure 1). The annual CPI of food (retail inflation) stood at 4.8 per cent, higher than the inflation of 7.7 per cent in the previous year i.e. March 2022. This was also built on an inflation rate of about 4.9 percent. In March 2021. If you look at more historical data, the food price index of the country has been rising unilaterally since March 2020 with the onset of Covid-19.
Hence, the notion that the inflation rate has come down below the RBI’s limit of 6 per cent and hence, all is well now, may be a stretch.
Also, there is a seasonality in these prices – festivals and monsoons see a surge. For example, during Chaitra Navratri in March 2023, the price of bananas in Noida increased from around Rs 60 per dozen to Rs 90 per dozen.
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A pattern of the average Indian family
Food is the most important component of the CPI, with a weight of 46 per cent. Such high importance for food reflects the expenditure pattern and moderate income of an average Indian household.
The Price Monitoring Cell of the Ministry of Consumer Affairs collects data on retail prices from across India. According to its data, in Delhi, the average monthly retail price of rice is set to increase from Rs 31.10 per kg in March 2022 to Rs 38.26 per kg in March 2023 – an increase of 22.6 per cent.
In the same period, the price of wheat increased from Rs 23.33 per kg to Rs 29.39 per kg, an increase of 26 per cent. The price of wheat flour increased from Rs 27.13 per kg to Rs 30.45 per kg, which is an increase of 12.2 per cent.
These items are staple foods for most Indians, although the proportion of wheat and rice varies from region to region. In states where the production of wheat and rice is less, the prices have increased further.
It is, therefore, no surprise that in March 2023, the annual inflation of staple food-cereals and products stood at 15.27 per cent at the all-India level.
Furthermore, people living in different states will have very different experiences. For example, the prices in Mumbai were much higher than in Delhi. Average Price of Rice, Wheat and Wheat in March 2023 Flour In Mumbai it was Rs 35, Rs 46 and Rs 52 respectively. Therefore, the CPI shows variation across states, and households in many states and cities may have experienced much higher inflation than the all-India data on food inflation.
Milk, another item of common consumption, saw abnormally high inflation of 9.3 per cent in March 2023. The CPI data shows that vegetable inflation was in negative territory, with inflation at minus 8.5 per cent.
The CPI also captures inflation in services. Retail inflation will rise if education, personal care, transport, recreation and entertainment become more expensive, as services have a weight of about 24 per cent in the overall CPI basket.
Outlook for 2024
Going forward, based on the final assessment of crop size, we can expect some recovery in wheat prices, however, due to the ban on export of wheat imposed in May 2022, the rise in prices may remain slow. It is noteworthy that in spite of this ban, about 5 million tonnes of wheat was exported in 2022-23 to the deficient countries.
For rice, the government is carrying much more stock than the buffer norm. Even though predictions about El Nino now seem more feasible, it is not only the level of monsoon rainfall but also the spread of rainfall that affects the Indian agricultural sector. If monsoon distribution becomes near-normal in 2023, we may not see much decline in production of kharif rice crops. tur, and soybeans. In such a situation, the increase in the prices of major food items may remain moderate.
However, milk prices may remain high till the beginning of winter. Lumpy skin diseases, high fodder prices, and a fall in prices during the Covid lockdown may have contributed to the reduced milk production.
In 2022, compared to many other countries, food inflation in India was moderate. But lack of jobs in the IT sector, stagnant wages, high house rents and transportation costs have hit even those with formal jobs, and hence, continued food inflation is likely to hit the budgets of many Indian households.
Hussain is the former Union Agriculture Secretary. Saini is an economist and Founder of Arcus Policy Research. Thoughts are personal.
(Edited by Hamra Like)