Ashima Goyal
Ashima Goyal

Vegetable Inflation Is Expected To Fall In September As Seasonal Softening Occurs After Rains, Says RBI MPC Member Ashima Goyal

Vegetable Inflation in India: RBI MPC member Ashima Goyal talks about the factors affecting headline inflation in an exclusive interview with Outlook Business.

India's retail inflation rate surged to a 15-month high of 7.44 per cent in July 2023, primarily driven by a rise in prices of vegetables. According to the data, consumer food price index (CFPI) inflation surged to 11.51 per cent in July.

After the latest monetary policy committee (MPC) meeting, RBI Governor Shaktikanta Das had said that the central bank would continue to keep an eye on inflation and the MPC decided to keep repo rate unchanged at 6.5 per cent.

In an exclusive interview with Outlook Business, RBI MPC member Ashima Goyal talks about the rising inflation, the effect of monsoon on prices and the forecast of headline inflation in the coming months.

Edited Excerpts:

Q

The July inflation print has shown that food inflation has risen from 4.49 percent in June to 11.51 per cent. Will high food inflation continue to put pressure on the headline number in the coming months?

A

The vegetable inflation is driven by the unprecedented spike in tomato prices due to flooding. But vegetables have a short cropping cycle and tomato prices are already falling. The steep rise is largely monsoon related and not expected to persist. Moreover, for onions, potatoes and cereals, use of buffers, trade etc. is more feasible to ease prices.

Q

The apex bank has revised the inflation forecast to 5.4 per cent from 5.1 per cent earlier. According to you, what are the factors behind this revision?

A

If inflation is higher in some months of the year, the average will also rise. Food inflation has a large impact on headline number since the weight of food in the 2011-12 base, which is still used, is 45.9 per cent.

Q

Will vegetable inflation continue to be high all through the festive season which is just around the corner?

A

Vegetable inflation is expected to fall in September. There is a seasonal softening that normally occurs after the rains.

Q

Which one is the bigger worry for you- cereal inflation or vegetable inflation?

A

Cereals have a longer crop cycle and are also affected by global trends. But many price smoothing measures are available for cereals. Since erratic weather patterns may become more common, resilient vegetable supply chains that take advantage of the country’s geographical diversity have to be built. Well integrated markets respond to price signals without requiring large spikes. Delhi should not be sourcing tomatoes only from Himachal Pradesh.

Q

As per IMD statistics, by August 15, the season's cumulative rainfall fell to 5 per cent in the negative, going below normal range of ±4 per cent of LPA. How do you factor in the impact of below average rainfall and non-uniform monsoon on inflation in India?

A

July, which is the main sowing season, received good rainfall. In August, the deficiency in the east is being made up and floods continue in the north. The Indian Ocean dipole is working to counter the El Nino effect. The rains are more irregular this year so we need to wait for the monsoon months to pass before deciding if it is deficient.

Q

How do you assess core inflation going forward through festive months of October and November?

A

Input costs have fallen for firms and wholesale price inflation is actually negative. Therefore, core inflation is likely to continue to soften, if headline inflation reverts. Monetary policy action that focuses attention on the inflation target and prevents overheating of demand as well as government steps to reduce costs and commodity prices will ensure inflation stays within the tolerance band and converges towards the target.

Q

Is there any comfort you are drawing from the numbers on inflation front in India?

A

Research shows that volatile headline inflation reverts to a more persistent core. The current rise in inflation is due to supply shocks and will not result in higher inflation if they do not persist. This government has a good track record and experience in effective supply-side action that has kept Indian inflation relatively low despite major global fuel, food price and other supply shocks through the pandemic and Ukraine war. Short and long-term actions are possible and are likely to occur following which further monetary tightening that works by reducing demand and growth will not be required.

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