Economy
High-value food items drive retail and wholesale inflation higher
Consumer Price Index (CPI) increased to 5.76% in May 2016 as against India Ratings and Research’s (Ind-Ra) forecast of 5.40%, according to a research note from the ratings agency. However, Wholesale Price Index (WPI) came in at 0.79%, quite close to Ind-Ra’s forecast of 0.70%. Both CPI and WPI were primarily driven by inflation in high-value food items such as meat, fish, eggs, fruits, sugar and vegetables in May 2016.
 
According to the research note, retail food inflation (excluding non-alcoholic beverages and prepared meals) rose to 7.6% yoy (year-on-year) in May 2016 from 6.3% in the previous month. Pulses inflation moderated but still remains in high two-digit levels (31.6% yoy in May from 34.2% in the previous month). Vegetables price rose sharply to 10.8% yoy in May from 4.8% in the previous month. Sugar inflation increased nearly 14% yoy in May (April: 11.2% yoy). The four commodity groups - eggs, fruits, vegetables and sugar, with a weightage of 10.21% in CPI, contributed more than 28% to CPI inflation in May 2016. Likewise on the WPI front, food inflation jumped to 7.9% yoy in May 2016 from 4.2% in the previous month. Pulses, vegetables, meat, egg and fish alone contributed 63.4% to wholesale food inflation in May 2016.
 
Monsoon, at best, would have some softening impact on cereals inflation which has remained in the range of 2% to 3%. However, retail pulses inflation which has remained above 30% since October 2015 is unlikely to see a significant moderation given the supply and demand gap, points out Ind-Ra. Prices of items such as meat, eggs, fish, fruits and vegetables are likely to be even less impacted by a favourable monsoon. Price rise in these items is less cyclical and more structural in nature. 
 
Ind-Ra analysts observe that so long as structural issues such as productivity in agriculture and inadequacy in agricultural supply chain are not adequately addressed, food inflation will remain a perennial problem for the Indian economy. Therefore, pinning hope on monsoon to keep food inflation at a moderate level would be a misplaced bet, infers Ind-Ra.
 
The economy, so far, has benefited on the fuel front due to weak global crude prices. On the retail side, fuel prices came in marginally lower at 2.9% yoy in May 2016 from 3.0% in the previous month. Likewise, weak domestic demand has kept a check on manufacturing inflation. Core inflation (non-food non-energy) moderated to 4.8% yoy in May from around 5% in the previous month. Once this comfort begins to recede, which is likely due to the base effect, containing inflation around current levels would become even more challenging. 
 
The Reserve Bank of India by not undertaking monetary easing in its second bimonthly review seems to have not only read the writing on the wall correctly, but also warned correctly about the looming threat to inflation from higher food prices. Although Ind-Ra is not ruling out one more rate cut this fiscal, the room for doing so has definitely shrunk due to the three months of consecutive rise in retail inflation.  
 
Anticipating an uptick in inflation, the yield curve has already moved up ahead of the data release and is likely to trade higher due to the diminished scope of a rate cut in the near term. However, Ind-Ra opines it may see some action once the uncertainties related to the Brexit and US Federal Reserve action are over and the bond market shifts its focus back on the scope of incremental open market operations. This is expected to lead to an improvement in the systemic liquidity. So far as the rupee is concerned, it is unlikely to be affected by the inflation numbers and its movement will be contingent upon the global macroeconomic developments, concludes the research note.

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Vegetable prices soaring again on ‘scarcity’
As if the delayed monsoon was not making lives much easier, consumers are being made to shell out more money for buying everyday vegetables. Especially, prices of tomatoes have zoomed to about Rs100 per kg within a fortnight across the country. While some experts feel that this is due to lower crop output, few consumers are blaming this on hoarders and the government for its failure to arrest this sudden price rise. 
 
In Mumbai, while the tomatoes are being sold at Rs100 per kg as against Rs50 two weeks ago, in Delhi the prices have gone up to Rs35 from Rs17.50 per kg. Prices of cluster beans, cauliflower, brinjal, bottle gourd, green chilli, capsicum and other vegetables have also gone up while green vegetables such as spinach, methi and coriander have been witnessing a 100% hike in prices over past few weeks.
 
 
According to Twitterati, this sudden rise in prices is due to not allowing vegetables enter the market. One Ajay Singh says, “Trucks are stopped on roads, only limited supply letting into the market. At the same time, procurement of tomatoes from farmers hit low of Rs3-4 per kg.”
 
  
Some feels that the agricultural produce market committee (APMC) are playing games with supply and demand. At present, farmers in Maharashtra have to sell their vegetables and fruits to licensed traders of APMCs, who then sell it to vendors and retailers. The state government proposed to allow farmers directly sell their produce to consumers, which apparently have not gone down well with the APMC traders and members of the unions.
 
   
The National Horticulture Board (NHB) has provided a flat growth forecast for crop year 2015-16 on vegetable production. NHB says vegetable production during 2015-16 would decline marginally to 168.5 million tonnes (mt) from 169.48 mt a year ago. High temperatures during April and May have affected tomato production adversely in the key growing belts of Maharashtra like Narayangaon and Junnar near Pune as well as northern parts of the country, say experts. 
 
Speaking with Business Standard, Shriram Gadhave, president of Vegetables Growers Association of India, said, “Yield has been severely lower this year, with farmers witnessing 25% recovery of major vegetables, after summer heat. As against eight tonnes per acre of tomato output in the normal case, farmers are harvesting two 2 tonnes or less. The quality of harvest is also poorer than expected.” 
 
According to Gadhave, the high temperatures during April and May resulted in around 85-90% of flowers and leaves of vegetable plants being dropped, leaving hardly 10% of the farmers with a crop, especially tomatoes. 
 
There has also been a sharp decline in arrivals due to crop losses. Add to this the severe drought in Maharashtra, which has affected overall production of vegetables. At Vashi, average arrival is down to 100 to 150 trucks from an average of over 500 trucks. This wholesale market receives about 500 to 550 trucks of vegetable and other agricultural produce every day. Due to the drought, most traders from Maharashtra are procuring vegetables from other states, like Gujarat, Uttar Pradesh, Punjab, Karnataka and Haryana. However, this is also not sufficient and has led to price increase, feels the traders.
 
 
According to experts, this situation is likely to remain for the next two months or till new crops comes in. “Vegetables sown now with the onset of the monsoon rain would be harvested only by the end of August. Till then, consumers will have bear with high prices,” Gadhave told Business Standard
 
Here are the wholesale prices as on 14 June 2016 at Mumbai market...
 
 

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COMMENTS

Suresh Gopal

6 months ago

I suppose there is a lot of market manipulation in all this

Amit Anam

6 months ago

Like dal price , here also the govt is caught sleeping while the prices were increasing and the media went gaga over chest thumping victory of our PM over USA, totally ignoring the price rise issue which is hurting over 90% of our population

Vijay Mallya declared proclaimed offender under Money Laundering Act
A special court in Mumbai declared business tycoon Vijay Mallya a proclaimed offender in a money laundering case following a petition by the Enforcement Directorate or ED.
 
Under law, the court naming somebody a proclaimed offender requires the person to appear at a specified place and at a specified time in not less than 30 days from the date of publishing of the order.
 
"It's an effective step towards securing the presence of Mallya and also one more chance to Mallya to come clean before the court in next 30 days. Failing which all his properties will be attached and sold by government," said lawyer Nitin Venegaonkar, representing the ED.
 
The ED has also said that it is in touch with Interpol to release a red corner notice, similar to an international arrest warrant, against Mr Mallya, who is believed to be living in the UK.

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