Inflation shocker

 India’s retail inflation soaring to 7.44%, surpassing the upper band of the Reserve Bank of India (RBI) target range of 6%, has fuelled speculation over rate hike by the RBI to tame it. With food inflation remaining sticky, onion being the latest contributor to it, apprehension of retail inflation gripping consumers for longer period is looming large. All India inflation rates released by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation for July shows that current inflation is the highest over a period of 15 months and higher than 6.71 % in July last year. Inflation rate in May eased to 25 month low of 4.25% and driven by food inflation it soared to 4.87 in June but still remained with RBI’s target range. The NSO collects price data from selected 1114 urban markets and 1,181 villages covering all states and union territories. Retail price of onion has already increased to Rs 50 in retail markets in Guwahati and other places in Assam. Rising prices of vegetables and pulses were already burning bigger holes in consumer pockets and onion price hike has added to their inflation worries. The Central Government’s move to make onions from the buffer stock available to retail consumers at a subsidized rate of Rs 25 a kg through retail outlets is aimed at providing relief to consumers but subsidized onions being available in all retail markets will be crucial to create a market impact. The Central Government has also raised the quantum of onion buffer to five lakh metric tonne this year, after achieving the initial procurement target of three lakh metric tonne. The Department of Consumer Affairs has directed NCCF and National Agricultural Cooperative Marketing Federation (NAFED) to procure one lakh tonne each to achieve the additional procurement target alongside calibrated disposal of the procured stocks in major consumption centres, states an official release. However, absence of mechanism to effectively enforce reasonable price variation between wholesale and retail markets have allowed unscrupulous traders to keep hiking vegetable prices at their whims and fancy. Retail traders attribute the exorbitant prices to rise in wholesale prices. Vegetable business being in the unorganized sector remains out of direct control of the government but if there is wide variation between the wholesale price and retail price the state government too should step in with measures like maintaining and releasing buffer stock at subsidised price to shield the consumers from inflation. Price Stabilization Fund is one mechanism created by the Central Government to moderate prices of some important agro-horticultural commodities like potato, onion and pulses by maintaining a strategic buffer for subsequent calibrated release to moderate price volatility, discourage hoarding, unscrupulous speculation and mitigate consumers’ hardship. After retail tomato prices increased to over Rs 200 a kg, the NCCF and NAFED started procuring tomatoes and started disposing at major consuming centres like Delhi-NCR, Rajasthan, Bihar initially at Rs 90 a kg which has been reduced to Rs 80 a kg and currently at Rs 70 a kg. In city retail markets, however, tomato continues to sell above Rs 100, in the range of Rs. 120 to Rs 140. Retail price of potato in Guwahati has also increased to Rs 30-40 while several other vegetables are also selling at prices above Rs 100 which, in turn, apart from upsetting individual household budget is also affecting hotels and restaurant and other food business. The government cannot turn a blind eye to the woes of consumers and small business due to inflationary pressure as it has erodes their purchasing and savings capacities. All eyes are on the RBI intervention to tame inflation and bring it within the upper tolerance limit of 6% if it does not ease to the targeted level ahead of the next meeting of the Monetary Policy Committee scheduled on October 4-6. The MPS in its statement after the last policy meeting earlier this month states that headline inflation is likely to witness a spike in the near months on account of supply disruptions due to adverse weather conditions. “It is important to be vigilant about these shocks with a readiness to act appropriately so as to ensure that their effects on the general level of prices do not persist. There are risks from the impact of the skewed south-west monsoon so far, a possible El Nino event and upward pressures on global food prices due to geopolitical hostilities,” MPC added. The RBI is hopeful that the spike in vegetable prices is likely to correct with fresh market arrivals but sounded the caution that the impact of the uneven rainfall distribution warrants careful monitoring. For Assam and other states in northeast region, which are dependent on supplies of essential commodities from outside the region, cut in fuel tax may bring down transportation cost and reduce inflationary pressure.