India’s Food Inflation Rises Amid Supply Disruptions In April

Retail food prices soared in April due to supply-side disruptions created by a nationwide lockdown which began on March 24. While essential commodities were exempt from the restrictions, collection, storage and transportation were impacted leading to less-than-normal supplies of farm commodities. Seasonal pressures also drove up prices.

Data released by the Ministry of Statistics and Programme Implementation on Tuesday showed that food and beverage inflation rose to 8.6 percent in April 2020, compared to 7.8 percent in March.

In the absence of fieldwork for price collection due to the nationwide lockdown, price data was largely collected by telephone, supplemented by information collected by field staff for items being sold at neighborhood outlets, the statistical department said. Due to data collection issues, it did not release the headline CPI inflation data for April.

The department released data only for those commodities for which inputs were available from at least 25 percent of the markets, accounting for more than 70 percent share of sales.

This data showed that food prices rose at an accelerated pace for the first time since December 2019.

Among key components:

• Vegetables inflation stood at 23.6 percent in April 2020 as against 18.63 percent in March 2020.
• Inflation in pulses stood at 22.9 percent compared to 15.85 percent the previous month.
• Cereals inflation rose to 7.8 percent in April compared to 5.3 percent in March.
• Milk and milk products prices rose by 9.4 percent against a rise of 6.47 percent last month.

The rise in food prices was higher in rural areas at 8.8 percent as compared to a rise of 8.32 percent in urban areas.

Food components saw a broad-based increase, in line with seasonal trends, said Rahul Bajoria, chief India economist at Barclays. However, high-frequency prices for May show some moderation especially due to continued normalisation in vegetables, he added.

Prices of vegetables, meat and fish, fruits and milk might remain high due to loss of perishables on account of the lockdown, stated a research note by Emkay dated May 12. The note added that cereal inflation may temper if government procurement is low.

Beyond food items, the statistical department reported data for housing and health.

Housing inflation stood at 3.9 percent in April compared to 4.23 percent in March. Health inflation stood at 2.8 percent compared to 4.17 percent last month.

According to the Emkay report, core inflation could fall as low 0-1 percent, leaving enough room for the Monetary Policy Committee to cut interest rates.

“Given the likely muted demand for most non-essential items, weak pricing power for producers and favourable base effect in the second half of FY21, we expect the MPC to reduce the repo rate by 40 basis points to 4 percent at or before the next scheduled policy review in June 2020,” said Aditi Nayar, principal economist at ICRA.