Roiling resurgence – on inflaion level

Source: The post is based on the article “Roiling resurgence” published in “The Hindu” on 15th July 2023.

Syllabus: GS 3 – Indian economy

News: In this article, the author is discussing the recent rise in inflation in India, particularly in food prices, driven by factors such as erratic monsoon rains and lower crop sowing. They emphasize the need for policymakers to control prices to support economic recovery.

About the current inflation scenario

1.The recent Consumer Price Index (CPI) data shows a rise in inflation with June’s CPI reaching a three-month high of 4.81%.

2.Food prices are leading this surge, especially in the food and beverages sector, which makes up almost 46% of the CPI’s weight.

3.Specifically, cereals witnessed a 12.7% price gain, eggs rose by 7%, dairy by 8.56%, pulses by 10.5%, and spices by a sharp 19%.

4.Vegetable prices, though still in the disinflation zone, rose significantly in June, with tomatoes increasing by 64% from May.

5.Despite inflation being at 7.01% in June 2022, current trends indicate a resurgence in price pressures.

6.Erratic monsoon rains and lower sowing of the kharif crop could potentially lead to further inflationary pressures.

7.Policymakers must therefore tighten control over prices to support economic recovery.

What are the reasons for the rising inflation?

1.Rising food prices are a major cause of inflation, with the food and beverages group’s inflation reaching 4.63%.

2.Specific food items like cereals and spices saw significant price increases, at 12.7% and 19% respectively.

3.Even vegetable prices, despite being in the disinflation zone, witnessed a sharp rise in June.

4.Core inflation (excluding food and fuel) remains steady but high at 5.16%.

5.Agricultural trends such as erratic monsoons and lower kharif sowing have resulted in potential crop output uncertainties, which may further fuel inflation.

What is the impact of agricultural trends on inflation?

Impact of monsoon trends on inflation: Erratic monsoon trends are causing uncertainties in the agricultural sector. These uncertainties may disrupt crop outputs, leading to price increases and thus influencing inflation rates.

Impact of sowing trends on inflation: As of July 7, overall kharif sowing was 8.7% lower than the previous year. This shortfall, especially a 24% drop in rice sowing and a 26% drop in pulses, could reduce crop availability, pushing prices and consequently inflation upwards.

Impact of oilseeds deficiency on inflation: With oilseeds reflecting a 14% deficiency compared to 2022 levels, there’s a potential risk for inflation increase due to higher cooking oil prices.