Cereals Inflation Cause Of Worry: India Ratings

New Delhi: With cereals inflation rising by 6.3 per cent in June, India Ratings has said a sudden spike in wheat and rice prices is a cause of worry and the government should make timely market intervention to cool rates.

"Cereals inflation further firmed up to 6.3 per cent in June from 4.6 per cent in May 2016, which is a cause of worry," the rating agency said in a statement.

Although monsoon is likely to be above normal this year, there was some delay in monsoon showers reaching many parts of the country and that delayed the sowing of the kharif crops.

"It is, however, difficult to say whether the escalation in cereals prices is a temporary response to this delayed sowing or there is something else that has led to the sudden spike in the prices of cereals."

"In either case, a close watch on the cereals prices is warranted and timely market intervention by the government could correct this, given the stock of cereals with the government," India Ratings & Research said in a report.

Food Corporation of India, the government's nodal agency to procure and distribution of food grains, held over 50 million tonnes of wheat and rice in its stock last month. 

Food inflation rose to 8.18 per cent in June from 7.88 per cent in May and has nearly doubled from March 2016 (4.09 per cent). Like retail food inflation, cereals have emerged as a new driver of food inflation besides pulses and vegetables. 

Pulses prices moderated to 26.6 per cent in June from 35.6 per cent in the previous month. Pulses inflation averaged 42.1 per cent during June 2015-May 2016.

"Although moderation in pulses inflation could bring some relief to upside pressures on food inflation, a significant fall in pulses prices is unlikely since prices are driven by the supply-demand gap rather than seasonal factors," the agency said.

Fruit and vegetable prices rose sharply to 11 per cent in June from 7.7 per cent in May 2016, mainly led by vegetables. 

Vegetable prices rose to 16.9 per cent and fruit prices increased to 6 per cent in June 2016 from 12.9 per cent and 3.8 per cent, respectively, in the previous month. 

While the prices of high-value food items such as meat, eggs, and fish showed some moderation in June, milk price inflation which had averaged 2 per cent since August 2015 rose to 3.2 per cent in June 2016 (May 2016- 2.4 per cent). 

"Unlike cereals, intervention by the government to effect a softening in the prices of pulses and vegetable is not possible," the agency said.

"Management of food inflation will remain a challenge as price shocks emanating from the aberration in the prices of select agricultural commodities cannot be ruled out coupled with the demand-supply gap and inadequate agricultural supply chain infrastructure," India Rating said.