Inflation Woes: Heavy Rains In Some States Make Vegetables Costlier

Vegetable prices are surging due to excessive rainfall in some states, which poses a risk to food inflation in the near term. Some of the major items, such as onions, cauliflower, garlic and bitter gourd, are witnessing price rises, according to an ICICI Bank research note. 

As of Sept. 18, India’s cumulative rainfall reached 871.9 millimetres, representing 107% of the long-period average. The monsoon's spatial distribution remains uneven, with above-average rains in the south, central and northwest regions. The rainfall in the east and northeast parts of the country is still below normal.

The higher rainfall is leading to vegetable prices rising by 3.5% month-on-month in September, the research note said. Pulses, vegetables and cereals are experiencing significant double-digit inflation on a yearly basis.

Pulses sowing has increased by 7.9% year-on-year to reach 12.8 million hectares, although this remains below the long-period average of 13.6 million hectares. Meanwhile, the sowing of coarse cereals and oilseeds has risen by 3.6% and 1.5% year on year, respectively.

India's retail inflation remained at a near-five-year low of 3.65% even after it rose marginally in August. Vegetable prices rose 10.7% compared to 6.8% in July.

There is good news on the food prices front, as better output is expected of grains. The area sown under kharif or summer crops has reached 109.7 million hectares, marking a 2.2% year-on-year increase and slightly exceeding the long-period average of 109.6 million hectares. Rice sowing is up 2.1% at 41 million hectares.

The higher acreage bodes well for the medium-term outlook of food inflation, led by pulses, cereals and coarse cereals, ICICI Bank research said.

The country's kharif rice production is expected to surpass last year's levels, Agriculture Minister Shivraj Singh Chouhan said on Thursday, citing anticipated higher yields despite some crop damage from heavy rains.

Kharif rice, harvested around November, accounts for about 70% of India's total rice production. Chouhan expressed optimism about overall kharif crop production, despite some damage to oilseed crops like soybean.

The correlation between average temperatures and India's food inflation has risen sharply over the last decade, according to research by HSBC India. This is true across individual food groups—perishable crops, durable crops, and animal protein sources.

Headline inflation has averaged about 5% so far in 2024. By the end of this year, headline, core, and food inflation are all likely to converge towards the 4% target, opening up space for interest rate easing by the RBI, the research said.