Food prices persistently high despite marginal easing in retail inflation

In April, India witnessed a marginal easing in retail inflation, with the Consumer Price Index (CPI) edging down to 4.83 per cent from 4.85 per cent in March. However, the relief was overshadowed by the persistent surge in food prices, which continued to escalate, indicating challenges for policymakers in reigning in inflationary pressures.

The latest data released by the ministry of statistics and programme implementation revealed that food inflation rose to 8.7 per cent in April, up from 8.5 per cent in March. This upward trajectory was primarily driven by the increasing costs of cereals and meat. Even though vegetables, which have been persistently elevated, experienced a slight softening, the overall trend remained worrisome.

The relentless rise in food prices has been a cause for concern, particularly as it constitutes a significant portion of the CPI gauge, accounting for 39.1 per cent. For the past six months, food inflation has remained stubbornly above 8 per cent, exerting sustained pressure on overall inflation levels.

Contributing to the marginal easing of the headline number in April were non-food components, which helped curtail the CPI-based inflation gauge to 4.83 per cent, two basis points lower than in March. Notably, fuel inflation decreased to 4.2 per cent from 3.4 per cent in March, while core inflation softened to an all-time low of 3.2 per cent.

Despite the mild relief observed in April, the trajectory of inflation remains a focal point for policymakers and economists. The expected rise in commodity prices, coupled with a low base effect, is anticipated to exert upward pressure on core inflation in the current fiscal year.

Looking ahead, the anticipated onset of the monsoon rains holds promise for offering respite from the escalating food prices, provided they are well-distributed across time and geography. However, concerns persist regarding the adverse impact of ongoing heatwaves on agricultural production and food supplies.

The persistence of food inflation above 8 per cent for an extended period underscores the challenges in achieving the Reserve Bank of India's (RBI) medium-term target of 4 per cent. While the central bank has maintained its key lending rate unchanged at 6.5 per cent for the seventh consecutive time, governor Shaktikanta Das has emphasised the volatility in food inflation as a hindrance to the ongoing disinflation process.

Economists and market analysts anticipate a continuation of the RBI’s current stance of a policy rate pause, given the unchanged headline and core inflation readings. Upasna Bhardwaj, chief economist, Kotak Mahindra Bank commented on the situation and said, “Unchanged headline and core inflation reading from previous month will continue to provide respite to the RBI’s Monitory Policy Committee. However, erratic weather and heatwaves should keep the overall sentiment cautious. We do not expect much change to RBI’s narrative for now, as a prolonged pause in policy rates remains the base case.”

However, the unpredictability of weather patterns and the prevalence of heatwaves warrant a cautious approach. While the marginal easing of retail inflation in April offers a glimmer of hope, the persistent rise in food prices remains a pressing concern.

“The mild easing of the headline number in April is encouraging, but the acceleration of this downtrend is what matters, especially since recent swings have been worrying. Food inflation, which has a 39.1 per cent weight in the CPI gauge, has remained well above 8 per cent for six months now," Dharmakirti Joshi, Chief Economist, CRISIL said.

Joshi added that as the pressure on food prices continues, including due to the ongoing heatwaves. "Our base case is that the upcoming monsoon rains can offer respite, assuming they are well distributed in terms of time and geography," he said. The upcoming monsoon season and its impact on agricultural output will be closely monitored as policymakers strive to navigate the complex landscape of inflation management.