Heatwave to keep the heat on food inflation; prices of tomatoes, onions and potatoes under pressure: BoB Study

It’s not only the mercury that the heatwave across the country is driving up but also prices of a number of food items and FMCG products. According to a study by Bank of Baroda, the ongoing heatwave is likely to lead to a sharper increase in prices of kitchen staples like tomatoes, onions and potatoes. Prices of some FMCG items such as ice creams and fruit juices as well as durable goods are crawling up.

“Heatwave in the country seems to be persisting longer than usual with IMD alerts for certain northern states and Eastern part of India still continuing. These are also the major tomato, onion and potato producing states. Further, harvesting period is also nearing its end, so there will be a lag in fresh arrivals,” said the BoB report.

According to the report authored by BoB economists Aditi Gupta and Dipanwita Mazumdar, CPI inflation is likely to be under pressure and they do not foresee food inflation to dip below 7.5-8% in the next two-three months. “Thus, weather vagaries may lead to CPI overshooting RBI’s projection both in the first and second quarter of the current fiscal,” it said.

Retail inflation eased to 4.75% in May, which was a 12 month low although inflation in the consumer food price index remained high at 8.69%.

The report also analysed the trends in demand and prices of items used in the summer such as ice creams, fruit juices, air conditioner and refrigerators and found that their prices too seem to be inching up based on the seasonally adjusted rates.  

Among major FMCG items, cumulative inflation rate in items such as ice cream, fruit juices and shakes does not provide a conclusive picture, it said, adding that for ice cream, the inflation rate is impacted by an elevated base. However, the inflation in this category is still above 4%.

“For items such as ice cream generally the increased consumption during summer bumps up the prices. However, this year even adjusting for this seasonality, the sequential momentum is higher than last year, both in April 2024 as well as May 2024,” it said, adding that a part of it can be attributed to rising milk prices, which in turn are impacted due to rising fodder prices on account of adverse weather conditions.

Apart from ice cream, even the seasonally adjusted sequential momentum for fruit juices and shakes and refrigerators has seen a pickup, which was not visible in the cumulative data, it said. However, prices of air conditioners and air coolers have shown momentum in terms of cumulative inflation, which is reflective of higher demand for these durable goods.