Food Inflation Remains a Concern Amidst Heatwave Impacts: ICRA

Wholesale food inflation, at a four-month high, is expected to rise in May and June due to heatwave affecting perishable food prices. Monsoon's impact will determine price conditions later. Wholesale food inflation in April reached 7.74%, while retail food inflation remained at 8.70%. Weather, particularly heatwaves, significantly impacts food inflation trajectory. July and August may see a temporary dip in food inflation due to a high base effect. Higher food prices contributed to a 13-month high WPI inflation of 1.26% in April.

The wholesale food inflation, which is at a four-month high, will continue to be a cause for concern in May and June as heatwave is likely to jack up prices of perishable commodities, ICRA Chief Economist Aditi Nayar said on Tuesday.

Although the impact of high base of last year will play out in July and August, the impact of monsoon will determine the price conditions in the subsequent months.

As per data released on Tuesday, the wholesale price index (WPI)-based food inflation was at a four-month high of 7.74 per cent in April.

Retail food inflation also remained stubbornly high at 8.70 per cent in April 2024, as against 3.84 per cent in April 2023.

Nayar said weather is an important factor in determining the food inflation trajectory. Monsoon was not very favourable last year and this year there are heatwaves in parts of the country, she said. ''With the onset of summer, prices of perishable items are charting upwards. For the next two months, we expect the food inflation to climb further and then as the base effect turns very supportive, we will end up with temporarily plunging readings in July-August this year,'' Nayar told PTI. Food inflation was very high in July and August 2023, when it was 15.09 per cent and 11.43 per cent, respectively.

''So, we will have very low food inflation in the months of July and August and things will normalise after that and by then more than half of the monsoon season will be over and those cues will become important for food inflation trajectory after August,'' Nayar added.

Higher food prices drove WPI inflation to a 13-month-high of 1.26 per cent in April. Retail inflation data released on Monday showed that the consumer price index (CPI)-based inflation was at an 11-month low of 4.83 per cent in April, even though the prices of food and vegetables ruled high.

Nayar said the divergence in wholesale and retail inflation is because WPI has higher weight of commodities, and changes in global commodity prices and exchange rates get reflected in the index. Besides, CPI includes services and gives higher weight to food items.

''Almost a quarter of the CPI is made up of services that wont find any place in the WPI at all. So indices have a very different composition and a very different nature in terms of how the inflation rates move. It is fairly common for the WPI and CPI to be at very different levels and moving at different directions at the same time,'' Nayar said.