Power crisis and fertilizer costs to make food pricier in the coming months

• The prices of vegetables and pulses had moderated, but this trend could reverse in the coming weeks, making May present another inflation shocker.
• Fuel and light inflation in April grew by 10.8% as many states hiked power tariffs and commercial cooking gas prices also went up.
• In the past 12 months, the World Bank’s fertilizer price index has surged by more than 150%.
• Retail prices of clothing and footwear prices went up by around 10% in April.

Rising wheat prices along with a massive surge in cooking oil pushed the April food price inflation to a 17-month high of 8.1%. The cereal price rise at around 6% and 17% spike in cooking oil prices have edged out the sobering vegetable and pulse prices.

Even the moderated prices of the few items might not hold up and are expected to reverse in the coming weeks, making May another inflation-shocker month.

“High-frequency prices for the month of May suggest that the price pressures are here to stay for some time to come. Indeed, available data from the Department of Consumer Affairs suggest that with the exception of pulses, mustard oil and some vegetables, such as onions, the prices of all food products are rising in May,” said a research report by Barclays.

Electricity, fertilizer prices will be passed on to food prices

Apart from the rise in rural inflation affecting the living costs of our food producers, farmers in the monsoon season will face exceptional cost pressures from rising electricity prices - which are surging higher than usual due to the ongoing power crisis in the country. Fuel and light inflation in April grew by 10.8% as many states hiked power tariffs and commercial cooking gas prices also went up.

Then, there is the increased cost of fertilizers. “Rising fertilizer prices internationally are expected to push production costs higher for farmers and it will feed into food prices. In the past 12 months, the World Bank’s fertilizer price index has surged by more than 150%. Subsidy support extended by the government could provide some relief but whether it will be enough to tame the cost of production remains to be seen,” said a report by CARE Edge.

Feed costs which affect poultry and milk production are also expected to rise further in May keeping dairy, chicken and egg prices higher.

Indian demand revival may be affected by high inflation

There has been a sharp increase in household inflation expectations. In the first week of March, most Indian households were hoping that inflation would remain around 7% for the next three months. The sudden price hikes pushed their expectations above 10%, within a week, a factor that will affect the demand dynamics in the coming months.

“There is a heightened risk of second rounds of impact on inflation due to high energy and food prices. This could further strengthen core price pressures, impacting nascent demand revival,” as per a CARE Edge view.

Retail prices of non-food products like clothing and footwear went up by around 10% in April. This is the second most popular category of products whose prices rose in April, after fuel and cooking oil - affecting the slowly growing consumer sentiment - which has the power to revive the Covid-affected economy.

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