Headline inflation to spike in near months on food prices, El Nino event: RBI MPC Minutes

livemint.com:

Ashima Goyal, Jayanth R Varma and Rajiv Ranjan voted for status quo on the policy rate. Going forward, the spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory. This jump is, however, likely to correct with fresh market arrivals.

‘There has been significant improvement in the progress of the monsoon and kharif sowing in July; however, the impact of the uneven rainfall distribution warrants careful monitoring,’' said RBI. Despite a late start, the monsoon more than made up in July. The uneven progress of the monsoon manifesting in the form of excess rains in the north west regions and disrupting supply, and deficient rains in the eastern part delaying crop sowing, according to MPC members.

Precipitation is uneven, however, and extreme weather has caused unprecedented spikes in key vegetable prices. Vegetables rates rose sharply in June-July – much above the seasonal trend and the largest in recent memory. High frequency food price data for July indicate a major price shock from vegetables, particularly, tomatoes and this time around it is turning out to be different than earlier episodes.

Since mid-June to end-July 2023 tomato prices have surged by 362 per cent, with more than 80 per cent of the price escalation happening during end-June and first half of July. The magnitude and intensity of the price shock this time around was substantially higher when compared to earlier years. Although the catch up in kharif sowing augurs well for agricultural production, price increases observed across other vegetables as well as other food sub groups such as cereals, pulses and spices remain a point of concern, demanding our vigilant monitoring.