Stubborn inflation concerns: onion prices up, wheat output estimates down

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Just when retail inflation figures in September provided some sort of relief to the tormented wallet of the common man, rising onion prices are threatening to uncork the genie from the bottle with prices of the kitchen ingredient shooting up around 30% in a week in the onion capital of Maharashtra’s Nashik district, The Economic Times has reported. The spike is mainly on account of delay in the kharif crop showing up in the market. The prices in Nashik provide the benchmark for onion prices in the country. To make matters worse, prices of the essential grain of wheat are rising due to an uptick in demand during the festival season. Prices have swelled by 5-6% in just the past one week to cross Rs 27/kg in the national capital region. Wheat prices have touched a sensitive point and the milling industry has urged the administration to allow import of wheat at zero duty or raise the quantum of sale by public sector FCI to improve supplies. However, an uptick in festive demand might not be the only trigger for wheat prices to rise. The government has lowered estimates of wheat production estimate by 21.9 lakh tonnes to a record 1105.5 lakh tonnes for the 2022-23 crop year. The crop year ends in June. Incidentally, for the 2021-22 crop year (July 2021 to June 2022), India recorded a wheat production of 1077.4 lakh tonnes. Worse, onion and wheat are not the only essential items causing concern for the administration. Worried over likely shortfall in the supply of sugar, the government has extended export restrictions on sugar beyond October 31. It is worried about output following the erratic monsoons this year. All these developments trigger the spectre of stoking food inflation, especially against the backdrop of agencies such as the RBI and the World Bank. While both are confident that Indian GDP would grow this fiscal at a rate considerably higher than 6%, both have warned of inflation concerns. Just a couple of weeks earlier the World Bank raised its retail inflation forecast for the year from 5.2% (done in April 2023) to 5.9%. Food items enjoy about 47-48% weightage in the CPI and was found to be mainly responsible when the rate spiked to 7.44% in July. Calculations showed that vegetable prices led by tomato contributed about 200 basis points to the figure. Data from Agmarknet, onion prices have jumped to Rs 32-33 per kg from 23-24 per kg last week. “Onion prices have started rising again as the arrival of the kharif crop of red onions is expected to be delayed by one month. The rainfall in north Maharashtra’s onion belt was significantly deficient,” a Mumbai-based exporter told the newspaper on request of anonymity. Analysis of monthly prices shows that in many states wholesale onion prices have increased 5-7% on a month-on-month basis, while in Maharashtra the rise on the same basis was to the tune of 15%. However, the government relaxed the export curbs on non-basmati white rice a bit by allowing export of this grade of rice on October 18. Export of 10,34,800 tonnes of rice was allowed to seven countries including Nepal, Malaysia and Cameroon.