Food prices in India may rise further before they cool down

The resultant increase in vegetable prices has been sharper in urban areas, where the prices have surged by as much as 41 percent. According to Shaktikanta Das, Governor, RBI, “Inflation excluding food and fuel – that is core inflation has softened by more than 100 bps from its recent peak in January 2023. The month of July has witnessed an accentuation of food inflation primarily on account of vegetables. The spike in tomato prices and a further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the near term.”

When ocean temperatures rise in the central and eastern sectors of the Pacific Ocean surpass their typical levels, it changes the atmospheric circulation patterns. It, typically, makes the monsoon weaker in the Indian subcontinent.

There are also global market factors at play. "If international prices are rising, say, 20 percent, we can take measures to limit that to about 10 percent. In an integrated world, there are so many ways prices find a way to enter domestic markets. You may not export wheat, but there is atta, and if not atta, there is bread that can go from India to other countries. If not bread, it could be cookies," Chand said in an interview with Moneycontrol.

While with food price inflation surging from 4.5 percent in June to 11.5 percent in July, households in prominent states are experiencing financial strain. From staples like wheat and rice to vegetables and spices – which constitute significant portions of the food and beverages segment of the Consumer Price Index – nearly all these items have witnessed price hikes.

Rising inflation hurts everything from household consumption to borrowing costs for companies, and therefore, the returns from the share market too. Even the price of government bonds (considered to be the safest investment) fall and it’s already happening.