‘Exercise caution’. Peak inflation in pulses this year likely to be less pronounced: CRISIL

Even as monsoon wreakshavoc in many States, retail inflation in pulses is expected to be less volatile this year, according to a report by research agency CRISIL.

‘Pulses and products’ has a combined weightage of 2.38 per cent in the basket of Consumer Price Index (CPI). Retail inflation based on CPI for pulses in May was 6.56 per cent, which is higher than headline inflation (4.25 per cent) and retail food inflation (2.91 per cent). June inflation figures will be made public on Wednesday.  

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Cobweb phenomena

CRISIL said, “This year, assuming that pulses inflation continues to display the cobweb phenomena (albeit less pronounced), the next peak could be 6 to 7 months away.”

This phenomenon refers to a situation where the prices of certain goods witness fluctuations that are cyclical. It happens due to faulty producer expectations. The producers of agricultural goods, for instance, might decide to increase their output one year because their product commanded a very high price the previous year.

This, however, might lead to overproduction and cause prices to slump that year, leading to losses. Such cyclical price fluctuations are more severe in markets where speculators are banned from hoarding goods to sell them later at a higher price. The idea was proposed by Hungarian economist Nicholas Kaldor.

Price stabilisation schemes

The agency said that moreover, truant weather patterns last year caused damage to production, which could have some impact on prices. This year, too, “with rains delayed and uneven, and impacting pulses sowing, pressure on prices could be felt. But, continued government intervention via price stabilisation schemes could ensure that the next peak remains less intense,” it said.

The agency noted that in a recent move, the government announced the removal of the 40 per cent procurement ceiling for key pulses (tur, urad, and masur), which will allow farmers to sell any amount of their produce. “This should encourage farmers and help increase sown area in the cropping seasons to come. Higher procurement also facilitates better price signaling through announcement of MSP,” it said.

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Considering the price situation, the Consumer Affairs Ministry took some steps last month. On June 14, State Governments were asked to continuously monitor Tur and Urad prices, verify the stock positions, and take strict action against those violating the stock limits order. Stock limits have been prescribed for Tur and Urad until October 31 for all States and UTs. Limits applicable to each pulse are 200 MT for wholesalers, 5 MT for retailers, 5 MT at each retail outlet, and 200 MT at depot for big chain retailers, and the last three months of production or 25 per cent of annual installed capacity, whichever is higher, for the millers.

The agency feels incorrect price signaling was a key reason which led to cobweb pattern of growing pulses. Other policy measures, including the recent announcement to impose stock limits on arhar and masur to discourage traders from stocking supplies, also keep a check on price spikes. This year, too, “policymakers will have to keep their eyes peeled on monsoon behaviour and its implication on prices, and accordingly take measures to correct price pressure,” it concluded.

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