Costlier veggies could push up July inflation marginally

The latest surge in prices of vegetables such as tomatoes may not necessarily influence RBI Governor Urjit Patel’s policy-rate decision as the Monetary Policy Committee meets next week.

It, however, will continue to burn a hole in your monthly budget and could also push up July inflation numbers.

Both wholesale and retail inflation touched record lows in June, led primarily by a sharp drop in food prices. With the onset of the monsoon, tomatoes, onions and coriander often see a spike, leading to concerns about when the prices will settle and at what level.

Retail inflation in vegetables has been negative since last September though CPI inflation has been easing since this April. In June, WPI-based inflation eased to an 11-month low of 0.9 per cent, with vegetable prices decelerating by 21.16 per cent.

Similarly, retail inflation breached the 2 per cent floor target set by the RBI in June and was at its lowest level since January 2012, when it touched 1.54 per cent.

The Finance Ministry and industry have been pitching for a rate cut to boost investments, which have been lagging. The six-member MPC chaired by Patel will meet on August 1 and 2, about a fortnight before the official data on July inflation are released.

The MPC retained the repo rate at 6.25 per cent in its last policy in June, and analysts are hopeful of a 25-basis-point cut.

July data will show trend Noting that a clear trend in vegetable prices would be available with the July inflation data, Pronab Sen, Country Director, International Growth Centre, and former Chief Statistician, said that the MPC would also look at the stock market, which is on a bull run.

The rise in prices of tomatoes is a temporary phenomenon and is likely to normalise soon, said DK Pant, Chief Economist, India Ratings. “We still believe that there is a high probability of a 25-basis-point rate cut as usually longer term data is taken into consideration,” he added.

According to Naresh Takkar, MD and Group CEO, ICRA, “The prices of a number of food items such as pulses, vegetables, barring tomatoes and oils, remain weak on a seasonally adjusted basis so far in July. A reversal of the favourable base effect could lead to a sharp rise in food and headline inflation, and exceed 4 per cent during the second half of the fiscal.”

“Vegetable prices tend to spike a number of times during the year. But, we expect retail inflation in July to be weak and not to cross 2 per cent,” said DK Joshi, Chief Economist, Crisil.

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