Economists have suggested that the recent increase in onion prices is unlikely to exert a substantial influence on October’s inflation figures. However, they warn that this upward trend in onion prices could potentially result in inflation reaching approximately 6% in the upcoming months.
During the initial week of November, onion prices surged by almost 75% in comparison to the preceding month.
“Alongside a rise in broader vegetable prices in October, we expect CPI inflation to rise to 5.3% y-o-y from 5.0% in September, with headline inflation tracking 6% in November/December, before moderating next year,” said Sonal Varma and Aurodeep Nandi, economist, Nomura.
Despite economists’ assertions that declining tomato prices will likely maintain inflation at bay in October, they warn that the scenario might deteriorate in the future.
“Daily food prices from the National Horticulture Board is indicating a 10.9% MoM rise in onion prices in October, which is being countered by a 9.3% decline in tomato prices. Potato prices are also showing a mild decline in October. Overall vegetable prices, on a CPI-weighted basis, are showing a mild positive increase on a month-on-month basis,” said Gaura Sengupta, economist, IDFC First Bank.
Onions account for 0.64% of the overall retail inflation basket, while tomatoes hold a slightly lower 0.57% weight within the inflation basket.
“Retail prices are up by 30-40% y-o-y basis, so the impact can be around 0.19-0.24% in October,” said Madan Sabnavis, chief economist, Bank of Baroda.
Nevertheless, economists argue that a recurrence of the July-August period, during which inflation exceeded the Reserve Bank of India’s upper threshold of 6%, is improbable.
“The pick-up in onion prices is due to uneven monsoon distribution, which has impacted arrivals in September and October. But the disruption in supply isn’t as steep as it was in the case of tomatoes. Seasonally, onion prices tend to rise in October and November and then decline in December or January,” Sengupta said.
The government maintains a reserve of 500,000 tonnes. As of October 28, a total of 170,000 tonnes from this stockpile had been released for sale.
“The government has swung into action, announcing export duties on onions, minimum export prices and offloading buffer stocks, although prices are yet to cool,” said Nomura economists.
Even with declining prices, food inflation maintained an average of 6.6% in September. The strain caused by elevated onion prices is anticipated to sustain high food prices.
October’s inflation data will be made available by the government on November 13th.
