Seasonality & the return of double-digit food inflation

It’s back to double digit primary food price inflation, and it is not only onions which is triggering the upward spiral.

In fact, though the year-on-year increase in onions is disconcertingly high at 33.48% for the week ended December 11, 2010, at least seven other commodities — mainly in the fruits & vegetables segment as well as condiments & spices — have recorded an even sharper rise.

In garlic, the jump was a staggering 109% and in turmeric over 50%. Among fruits, prices of grapes have soared by 44% while cauliflower is up by 42%.

Milk and eggs, meat & fish have become costlier, attenuating the price situation and  pushed  the point-to-point inflation rate to 12.13% during this week.

In terms of weighted contribution, however, the prime mover behind the soaring prices has been milk, accounting for as much as 30.24% of that week’s inflation figure.

Eggs, meat & fish have hardened over the year and this group’s relative share in the overall food inflation was also considerable at 26.59%.

Surprisingly - though this is indeed sweet music — there has been a welcome respite on the price front when it comes to staples. In fact, food grains price index has ruled 2.54% lower than what it was a year ago; as a result, the contribution of this key subgroup to the inflation rate was negative (-6.39%).

Cereals has drifted lower only marginally with contrary trends in rice and wheat. Rice has hardened by 1.40% — which is modest by any standard — while the wheat index has declined by over five%.

Though bajra was down by 2.19%, a hardening sentiment was seen in barley and maize; jowar is up by 4.63% but ragi is subdued, In pulses, the inflation rate is negative, with the index down by as much as 11% during the week ended December 11, with a significant fall in masur, urad, arhar and moong.

The ugly fact is that, despite the quite-to-easy conditions in the foodgrains market, and , given the large weight in the wholesale price index, its negative weighted percentage contribution to the inflation rate, price front has taken a turn for the worse during the second week of December.

In regard to vegetables and fruits, which at this time of the year, should normally take a dip, the trend is just the reverse. Unseasonal rains may have played a role in this but, even factoring this, the increase is rather strident.

In onion, the spurt has been of the order of 33.48%. This is before the full dimensions of the crisis became evident and one can expect similar sharp spikes in this commodity. In respect of such items as cauliflower and brinjals, where the rise is very marked, the government can do very little unlike in onions.

In fruits too, the hands of the government are tied; if at this time of the year, the index is up by a whopping 20%, the ensuing months may be very tough for the common man.

Even the common man’s favourite — banana — has shot up by over 28% now compared with the year ago. He has a reason to smile too as another key item of consumption — potato — is now available at affordable prices; the wholesale price index for potato has plunged by a whopping 28%.

It appears that seasonal factors are largely responsible for the upward march in the wholesale index. If this is so at this time of the year, it presages worse tidings in the weeks ahead when prices of other commodities tend to firm up.