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LATEST NEWS UPDATES | Pulses and cereals are key worries in inflation -Ishan Kumar Bakshi & Indivjal Dhasmana

Pulses and cereals are key worries in inflation -Ishan Kumar Bakshi & Indivjal Dhasmana

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published Published on Jul 19, 2016   modified Modified on Jul 19, 2016
-Business Standard

The latest bout of retail inflation was caused by vegetables, but prices of these items are not as worrisome as those of pulses

The latest bout of Consumer Price Index (CPI)-based inflation was caused by vegetables, but prices of these items are not as worrisome as those of pulses, which saw a slight moderation in June. Besides, inflation in cereals has been rising modestly, but if not checked this could lead to serious problems.

Also, there was a divergence between the rise in inflation in urban areas and a decline in rural areas in June, which economists attributed to the disruption in transport due to rain. However, the rural areas have been bearing the brunt of higher inflation: it was 6.20 per cent in rural areas in June against 5.25 per cent in urban areas.


Latest estimates of the CPI released by the Central Statistical Office show retail inflation rose to a 22-month high of 5.77 per cent in June on soaring food prices. The consumer food price index rose to 7.79 per cent in June, up from 7.47 per cent in May. By comparison, food inflation was 5.48 per cent in June last year. The CPI is now marginally below the upper band of the Reserve Bank of India’s (RBI’s) inflation target of 6 per cent. This hardening of food inflation is largely a consequence of soaring prices of vegetables and pulses. However, while inflation in vegetables has been increasing in recent times, it has been decreasing in pulses. Even then, inflation in pulses was at 27 per cent in June. (See chart).

But of the two drivers of food inflation, economists are less worried about rising vegetable prices and more concerned about rising prices of pulses.

“Prices of vegetables tend to be extremely volatile, with spikes in some periods followed by sharp dips after harvest, given the lack of adequate storage for these perishable items. The vegetable price rise we are seeing now would subside , with an easing of the temperature, before declining further if there is a good harvest with limited incidence of disease or pest attacks,” said Aditi Nayar, chief economist, ICRA. Pronab Sen, former chairman of the National Statistical Commission, said, “Vegetable prices are likely to come down over the coming months.” Vegetables typically follow a three-month crop cycle, and with a better monsoon season in the offing, the next vegetable crop should be large. Experts contend that vegetable inflation could come down around August when the new crop arrives in the market. By comparison, the outlook for pulses is worrying. “The hardening in prices of vegetables is less ominous than the structural demand-supply mismatch for pulses. The gap between domestic production and demand is difficult to meet through imports, given that pulses are cultivated in a few countries,” Nayar said.

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Business Standard, 19 July, 2016, http://www.business-standard.com/article/economy-policy/pulses-and-cereals-are-key-worries-in-inflation-116071900017_1.html


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