Mumbai: RBI governor Shaktikanta Das has said there will be a slowdown in vegetable inflation from September, with the July spike correcting in August, led by tomato prices. The governor, however, called for supply side interventions to limit the impact and duration of price shocks.
“The July print, which was released after the monetary policy committee meeting, was on the higher side compared to our estimates. Prices of vegetables surged by 37.3% (year-on-year), led by an increase of 201.5% in tomato prices. Reflecting these drivers, food group inflation more than doubled from 4.7% in June to 10.6% in July,” Das said in the Lalit Doshi Memorial lecture in Mumbai.
After reaching a low of 4.3% in May 2023, headline inflation has risen to 7.4% in July driven by the surge in tomato and other vegetable prices. Most analysts are now forecasting that rates will not drop until next year.
“On the positive side, inflation excluding food and fuel (core inflation) has softened by around 130 basis points from its peak in January 2023. Although it is still elevated at 4.9%, this steady easing of core inflation over the last five months is indicative of the ongoing transmission of monetary policy,” said Das.
He said new arrivals of tomatoes in mandis are already softening prices, coupled with proactive supply management in the case of onions. Das said the prospects for Kharif crops have improved, too, thanks to the progress of the monsoon in July, although cumulative rainfall has again moved into the deficit territory. The outlook for cereal prices has brightened, supported by active supply-side interventions.
“Sudden weather events, El Nino conditions and renewed geopolitical tensions, however, impart uncertainty to the food prices outlook,” the governor said. Das cautioned that frequent incidences of recurring food price shocks pose a risk to anchoring inflation expectations, which have been under way since September 2022. “The role of continued and timely supply-side interventions assumes criticality in limiting the severity and duration of such shocks,” the governor said.
