“Monsoon Woes: Soaring Vegetable Prices Pose Inflation Threat in India”
In India, irregular monsoon rains have wreaked havoc on the vegetable supply chain, leading to disruptions that are causing vegetable prices to surge. Farmers and traders predict that this trend will persist for an extended period, as delayed planting and crop damage during the ripening stage have impacted the overall yield. As a result, essential vegetables like onions, beans, carrots, ginger, chillies, and tomatoes have witnessed sharp price increases, causing concerns not only among voters ahead of state elections but also raising fears of higher retail inflation.
According to official data reported by Reuters, vegetable prices reached a seven-month peak in June, skyrocketing by 12% compared to the previous month. This price surge is particularly worrisome as vegetables account for 6% of the overall consumer price index (CPI). Normally, vegetable prices decrease in August with the arrival of the harvest, but traders fear that this year, prices will remain elevated until October due to limited supplies, leading to an extended period of expensive vegetables.
The sharp rise in prices for staples like onions, beans, carrots, ginger, chillies, and tomatoes is expected to contribute to higher retail inflation, reaching a seven-month peak in July. This surge in inflation could potentially restrict the Reserve Bank of India (RBI) from lowering interest rates during this year. Gaura Sen Gupta, an economist at IDFC FIRST Bank, suggests that supply-side measures would be the most effective approach to control the rise in food prices, and it is expected that the RBI will maintain its current interest rates until at least December 2023.
Over the past three months, wholesale tomato prices have increased by more than 1,400%, breaking a previous high of 140 rupees ($1.71) per kg. This sharp increase has led to reduced purchases both by households and restaurants. Farmers in Karnataka, a major tomato-producing region in India, attribute the price surge to unfavourable factors such as inadequate rainfall, elevated temperatures, and a virus outbreak that affected the crop. Additionally, due to a sharp decline in pricing around that time, tomato cultivation was decreased from the previous year.
The monsoon has affected various crops in different regions of India. States in the north and west, which are known for producing a lot of vegetables, saw rainfall that was up to 90% above average. However, some eastern and southern states received up to 47% less rainfall, leading to drier conditions.
Retail inflation is predicted to increase to 6.5% in July, above the Reserve Bank of India’s target range of 2% to 6% due to supply interruptions and rising food costs. Economists at HSBC predict that interest rates will remain high until mid-2024 as a response to the inflationary pressures.
Vegetable traders, like Rajendra Suryawanshi in Pune, are hopeful that supplies will begin to pick up in the next few weeks from crops planted in June. However, this may not be sufficient to cool down prices. Meaningful price corrections are expected to occur from September, and by October, prices could return to a more normal level.
As the nation braces itself for the impacts of rising vegetable prices and potential inflationary pressures, policymakers, farmers, and traders are closely monitoring the situation. The hope lies in an improvement in weather conditions and an increase in vegetable supplies in the coming weeks. Until then, consumers may continue to face the challenge of higher vegetable prices and their potential impact on household budgets.