Abstract: Of India's consumer goods basket, 46% is spent on food. Against the backdrop of declining global food costs, higher tomato prices are boosting overall inflation and becoming the Indian government's number one enemy in controlling inflation.
Article Source: Wall Street News
Author: Zhang Yiwei
Of India's consumer goods basket, 46% is spent on food. Against the backdrop of declining global food costs, higher tomato prices are increasing overall inflation, becoming the Indian government's number one enemy in controlling inflation.
A major factor in India's inflation reaching a record low this summer due to improvements in food management technology is the continued decline in food prices. However, the good times are not long, and the cost of vegetables and fruits has surged, leading to a rise in price pressure in India.
Tomatoes, on the other hand, are the main culprit; poor transportation conditions and lack of refrigeration facilities make the annual harvest loss rate as high as 16%.
This low technological efficiency, combined with India's population of 1.3 billion, makes India appear somewhat “unique” against the backdrop of the continued decline in global food costs. Food accounts for a high share of India's consumer goods basket, making food prices play an important role in determining overall inflation.
Tomatoes, potatoes, onions: the “sacred triangle” of Indian cooking
Tomatoes, potatoes, and onions form the “sacred triangle” of Indian cuisine. After mixing with spices, they are commonly used as a base for several types of curries and snacks. According to the latest government data, at least 75% of Indian households consume tomatoes on a daily basis.
Citibank Indian economists Samiran Chakraborty and Anurag Jha said that the supply shortage caused by torrential rains in India's Karnataka, Maharashtra, and Gujarat states is the main reason for the insufficient supply of tomatoes on the market and the sharp rise in prices.
Early trends in August suggest that the rise in tomato prices has spread to another major perishable food — onions. Usually, soaring vegetable prices due to monsoons will return to normal in 3-5 months as winter approaches; this year will be no different.
Food costs are rising, and overall inflation will accelerate to the mid-term inflation target of 4%
India's CPI rose 2.4% in July, higher than expected, as the rate of decline in food costs slowed (from 2.1% in June to 0.3% in July).
In the minutes of the latest round of policy meetings of the Bank of India announced on Wednesday (August 16), Bank of India Governor Patel said,
The sharp decline in food prices some time ago is not normal, and it is easy to be impacted by upward pressure. Apart from the effects of the normal Indian monsoon, whether the recent deflation in food projects can continue is still needed to be analyzed and proven by more hard data.
The Bank of India's benchmark repurchase rate will be cut from 6.25% to 6% this month, mainly due to the pressing demand for increased private sector investment. According to most economists' predictions, this will be the last time the Bank of India will lower its benchmark repurchase rate by the end of 2018, and inflation is expected to accelerate to the mid-term target of 4%.