Food inflation: Exceptionally hot summer, low reservoir levels may put stress on summer crop of veggies, fruits, RBI notes 

The Reserve Bank of India, in its monthly bulletin, noted that though CPI headline inflation softened further during March-April, the exceptionally hot summer season and low reservoir levels may put stress on the summer crop of vegetables and fruits. The central bank noted the rabi arrivals of pulses and vegetables need to be carefully monitored. The severe heatwave's impact may hinder the final stage of disinflation as the central bank aims to reach a 4% retail inflation target, disrupted by fluctuating high food prices.

India’s headline retail inflation eased to the lowest in a year at 4.75% in May 2024, the latest data released on June 12 showed. Headline CPI inflation moderated to 4.8% in April 2024 from 4.9% in March and 5.1% in February. CPI food inflation, however, edged up to 7.9% in April from 7.7% in March.

The India Meteorological Department (IMD) released the updated Long Range Forecast for 2024 Southwest Monsoon (SWM) seasonal rainfall (June to September) on May 27. The SWM season rainfall (June-September) will likely be above normal this year at 106 per cent of the long-period average (LPA) with a lower model error of ±4 per cent than previously anticipated in April 2024.

At the all-India level, the water storage level in 150 major reservoirs stood at 22% of total capacity as of June 6, 2024.

"The exceptionally hot summer season and low reservoir levels may put stress on the summer crop of vegetables and fruits. The rabi arrivals of pulses and vegetables need to be carefully monitored," the central bank noted in its monthly bulletin.

Adverse weather conditions tend to impact food prices negatively, however, the issues are not restricted to price rise.

"India is particularly vulnerable to losing labour productivity due to heatwaves as a large section of its workforce is engaged in outdoor work at this time of the year, as in agriculture, construction and mining. It is estimated that every degree of rise in temperature above 27 degrees celsius lowers labour productivity by 2-4 per cent," RBI noted in its State of the Economy article.

It added: "India loses around a quarter of its physical labour supply on very hot days. Added to output effects, this spills over into inflation and to investments in construction and logistics."

RBI noted that headline inflation is gradually easing, food inflation (y-o-y) remained unchanged at 7.9 per cent in May. In terms of sub-groups, inflation edged up in respect of cereals, egg, fruits and pulses, while meat and fish, milk, sugar, spices, nonalcoholic beverages and prepared meals witnessed a moderation in inflation.

Vegetable prices recorded a double digit y-o-y inflation for the seventh consecutive month.

A CRISIL MI&A Research report stated that the cost of home-cooked non-veg thali declined by 7 per cent in May, while that of veg thali became dearer by 9 per cent on-year during the same month. 

The cost of non-veg thali declined due to a drop of approximately 16 per cent on-year in the prices of broiler. The price of veg thali increased due to a surge of 39 per cent in tomato prices, 41 per cent in potato prices and 43 per cent in onion prices on-year. 

Besides, price of rice increased by 13 per cent on-year due to a dip in acreage, resulting in subdued arrivals. The prices of pulses surged by 21 per cent on-year due to lower reservoir levels which impacted the production. Meanwhile, the prices of cumin, chilli and vegetable oil fell by 37 per cent, 25 per cent and 8 per cent, respectively.