Economy

With rising prices of mustard oil, rice, ‘kitchen budget’ gets difficult to digest

Shishir Sinha New Delhi | Updated on January 04, 2021

Overall retail inflation estimated to be around 6%

Rising prices of mustard oil and rice are creating a deep hole in the pocket of middle-class families. Though prices of onion and potatoes, as also those of pulses have dropped from a high in October-November, they are still higher than the July prices.

Experts estimate that the overall headline rate of retail inflation should be over or around 6 per cent for the coming months. As a result, a pause on the policy rate by the Monetary Policy Committee (MPC) could continue.

Based on data collected from the Price Monitoring Division of Department of Consumer Affairs, the price of one kg of packed mustard oil has gone up from as much as ₹175 on November 30 to ₹208 on December 31. Similarly, the minimum price level of ₹90 between July and November is now ₹102.

“Mustard is considered to be immunity booster and, thus, the demand surged during Covid-19. Also, having more home food pushed the demand for mustard oil. Now, non-availability of seeds for crushing is creating a demand-supply mismatch, pushing up the prices of mustard oil,” BV Mehta, Executive Director of the Solvent Extractors’ Association of India, told BusinessLine.

He expects prices to come down after two months after a bumper crop will hit the market. All edible prices moved in tandem.

 

Festival demand

Apart from mustard oil, prices of rice rose on account of festival demand. Though the maximum prices of potato and onion are down to ₹55 and ₹70 a kg, respectively, on December 31, from the highs of ₹60 and ₹95 on October 31, they are still high from the July levels. Moderation in prices during November impacted overall headline retail inflation.

Ritesh Kumar Singh, CEO at Indonomics Consulting, said that retail inflation is down to 6.93 per cent in November mainly because of corrections in vegetable prices that are on expected lines as the October-December quarter, which saw better supply of all kinds of vegetables.

However, inflation for protein products such as meat and fish, eggs and pulses were very high in November at 16.7 per cent, 20.3 per cent and 17.9 per cent, respectively. “So, respite on food inflation is at best temporary in my view. WPI inflation inched up 1.55 per cent in November. The Wholesale Price Index (WPI) inflation rising up is a signal that CPI inflation too may follow it,” he said, while noting that the RBI has raised its inflation outlook to 6.8 per cent in the third quarter and 5.8 per cent in the fourth quarter.

Dharmakirti Joshi, Chief Economist at Crisil, feels space for rate cuts has disappeared with inflation hovering over 6 per cent. “It’s likely to remain in the vicinity of 6 per cent for the rest of the current fiscal as well. We expect the pause on rate cuts to continue,” he said, adding that the RBI will, however, continue with its accommodative stance and liquidity support.

Joshi expects retail inflation in the 5.5-6 per cent range by March 2021, while Singh foresees CPI to remain around 6 per cent by March. “No further rate cuts in near term in my view,” he said.

 

Published on January 04, 2021

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