Heatwave Set To Fuel Food Inflation, Predicts ICRA

Food inflation: ICRA Chief Economist Aditi Nayar said heatwaves likely escalating prices of perishable commodities during May and June

Retail food inflation remained stubbornly elevated, registering at 8.70 per cent in April 2024, compared to 3.84 per cent in April 2023. ( Image Source :Getty )

The ongoing surge in wholesale food inflation, reaching its highest point in four months, will persist as a significant concern throughout May and June, ICRA Chief Economist Aditi Nayar said on Tuesday. In a recent statement, Nayar highlighted the likelihood of heatwaves escalating prices of perishable commodities during these months.

According to Nayar, while the impact of the high base from the previous year will manifest in July and August, the trajectory of food prices in the subsequent months will largely hinge on the influence of the monsoon. As per data released on Tuesday, the Wholesale Price Index (WPI)-based food inflation surged to 7.74 per cent in April, marking a four-month high.

Meanwhile, retail food inflation remained stubbornly elevated, registering at 8.70 per cent in April 2024, compared to 3.84 per cent in April 2023.

Nayar underscored the significance of weather conditions in shaping the trajectory of food inflation, mentioning the unfavorable monsoon last year and the occurrence of heatwaves in parts of the country this year.

"As summer sets in, prices of perishable items are on the rise. Over the next two months, we anticipate a further climb in food inflation. Subsequently, with the base effect turning highly supportive, we anticipate a temporary decline in readings during July-August this year," Nayar said.

She pointed out that food inflation peaked in July and August 2023, reaching 15.09 per cent and 11.43 per cent, respectively.

Nayar predicted a period of low food inflation in July and August this year, followed by normalisation. She pointed out the significance of cues from the monsoon season, as more than half of it would have transpired by then, influencing the trajectory of food inflation after August.

The surge in food prices contributed to a 13-month-high Wholesale Price Index inflation of 1.26 per cent in April.

On the other hand, retail inflation data released on Monday revealed that the Consumer Price Index (CPI)-based inflation hit an 11-month low of 4.83 per cent in April, despite elevated prices of food and vegetables.

Nayar explained the disparity between wholesale and retail inflation by highlighting the difference in composition between WPI and CPI. She noted that WPI has a higher weightage of commodities, reflecting changes in global commodity prices and exchange rates. In contrast, CPI includes services and assigns a higher weightage to food items.

"Almost a quarter of the CPI comprises services that won't find any place in the WPI at all. Thus, indices exhibit a different composition and behaviour in terms of inflation rates. It is common for WPI and CPI to diverge significantly and move in different directions simultaneously," Nayar added.