Friday, May 9, 2025
 
Opinion
Jump in inflation: Painful for poor
 
The spike in inflation, which will be painful for the poor, is a result of the climate crisis, making it difficult to control through monetary policy

A vegetable price shock has sent India’s benchmark inflation rate to a 15-month high of 7.4% in July. The jump in headline inflation came despite a moderation in core inflation, which measures the non-food non-fuel part of the Consumer Price Index (CPI) basket. What does one make of the latest numbers? Three key takeaways; short-, medium- and long-term can be listed. Vegetable prices should cool down in a month or two and so will the associated tailwinds to headline inflation. In other words, there is no reason to panic. However, prices of other key food items, such as cereals and pulses, continue to rise at an uncomfortable pace. This means that the goal of bringing CPI close to the Reserve Bank of India’s target of 4% will not materialise anytime soon.

While price control measures are saving us from demand destruction via rate hikes, it is vital to ensure the result is not demand destruction in the rural economy.

After tomatoes, the government appears to have shifted its attention to onion prices. With reports of onion arrivals declining in wholesale markets and prices inching up, there is reason to believe that onions might offset some of the cooling in tomato prices in the coming weeks. This is a concerning development against the backdrop of a 7.4% retail inflation print in July, which was driven to a large extent by the 37% inflation for vegetables.

The government might extend the provision of free food grains under the National Food Security Act (NFSA) and continue to give ₹200 per LPG cylinder to beneficiaries of the Ujjwala scheme. Both were initially announced for a period of one year. Another report on August 18 noted that the central government is likely to assume a more and more proactive role in managing food inflation, especially for cereals. How should one see these developments? There is a political context and an economic context and both contexts are only papers and there is no relaxation found in civilized society.
 
 
 
 
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