India’s retail inflation, which rebounded to a nine-month high of 5.5% in September, could stay buoyant this month too amid hardening vegetable prices, and the Centre’s recent hike in minimum support price (MSP) for crops ahead of the Rabi sowing season could add a tad more momentum to food inflation, economists reckon.
“The delayed exit of monsoon rains in October remains a worry. Vegetable prices in the first 10 days of October have risen by 10-20%, and may lead to a similarly elevated print in October,” HSBC economists Aayushi Chaudhary and Pranjul Bhandari said in a research report this week. They expect food prices will begin to fall from November, with cooling temperatures and healthier reservoir levels.
However, with the Union Cabinet announcing a 2.4% to 7% hike in the MSP for the upcoming Rabi crop, there could be some impact on some key crops whose inflation is already elevated. For instance, the MSP for wheat, which saw a 6.7% rise in retail prices during September, has been raised by 6.6%. The MSP hikes are relatively lower for Mustard (5.3%), Masoor (4.3%) and Chana (3.9%), but the price rise in the latter two crops was high last month, with Chana prices up 21.2% at the retail level.
“If the entire increase in MSP is passed on to final prices for all output in an extreme scenario, the impact on the Consumer Price Index (CPI) would be around 0.27%. However, this would normally hold for wheat where there is procurement, and may not be the case for other crops,” Bank of Baroda chief economist Madan Sabnavis said, pegging the overall inflationary impact of MSP hikes at around 0.18-0.20% over a year.
While the two pulses, Chana and Masoor, have a weight of 0.5% in the basket, mustard oil accounts for 1.3% of the CPI. For wheat and atta together, the index has a 2.73% weightage. Thus, these four crops have a weight of almost 4.5% in the retail inflation gauge, Mr. Sabnavis pointed out.
Published - October 18, 2024 07:55 pm IST
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