Inflation May Rise Further In October As Key Vegetable, Edible Oil Prices Continue To Surge

Prices of key vegetables, such as onions and tomatoes, continued to climb in October after having pushed up food inflation in September. India's retail inflation accelerated to 5.5% in September, compared to 3.65% in August.

Food and beverage prices rose to a four-month high of 8.36% in September, compared to a 5.3% rise in August. Vegetable prices led the rise, rising 35.99% year-on-year from 10.7% in August. High-frequency data from October so far shows that prices of key vegetables continued to rise as several parts of the country saw heavy rains and supply-side disruptions.

On average, while prices of tomatoes surged by 37.5% in October so far, compared to the previous month, onion prices surged by 5.6% in the same period, according to high-frequency data from the Department of Consumer Affairs. From a year ago, while potatoes and onions cost nearly 50% more, tomatoes cost twice as much.

A rise in import duty pushed prices across edible oils higher.

Vegetable prices are tracking higher as per the National Horticulture Board by 12.5% month-on-month on a CPI-weighted basis, due to supply disruptions, while edible oil prices are tracking higher by 6.7% month-on-month after a hike in customs duties, said Gaura Sengupta, economist at IDFC First Bank, in a research note.

The delayed exit of monsoon rains in October remains a worry, according to Pranjul Bhandari, chief India economist at HSBC. "That said, we believe that with temperatures cooling down and rains filling up reservoirs, food prices will begin to fall from November onwards," she stated in the note. Already, the prices of pulses, eggs, meat, fish, and sugar have eased. And once vegetable prices fall, they typically fall sharply, she said.

Preliminary estimate shows that October CPI inflation is tracking closer to 6.0% after building-in rise in food prices on a sequential basis, according to early estimates by IDFC First Bank, with core inflation estimated at 3.6% annually.