The cause of concern amid heatwave is about food inflation

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As temperatures soar to potentially unbearable levels for humans, reports indicate that this heatwave will also have a significant impact on our wallets, particularly affecting the cost of food. Recent analysis highlights food inflation as a major concern among experts.

According to data released on Tuesday by ICRA, food inflation measured by the wholesale price index (WPI) reached a four-month high of 7.74 percent in April. This issue has been a cause for concern for the past few months. While the effects of a high base from last year will be felt in July and August, the trajectory of the monsoon season will determine price conditions in the following months.

Once again, retail food inflation stayed persistently high in April 2024, registering at 8.70 %, contrasting sharply with the 3.84 % recorded in April 2023. It  was at notable peaks in July and August 2023, standing at 15.09 % and 11.43 %, respectively.

“So, we will have very low food inflation in the months of July and August and things will normalise after that and by then more than half of the monsoon season will be over and those cues will become important for food inflation trajectory after August,” said Aditi Nayar, Chief economist, ICRA.

She further elaborated that weather plays a crucial role in shaping the trajectory of food inflation. She noted that last year, the monsoon was not particularly favorable, and this year, certain parts of the country are experiencing heatwaves.

“With the onset of summer, prices of perishable items are charting upwards. For the next two months, we expect the food inflation to climb further and then as the base effect turns very supportive, we will end up with temporarily plunging readings in July-August this year,” Nayar says.

The wholesale food inflation, which is at a four-month high, will continue to be a cause for concern in May and June as heatwave is likely to jack up prices of perishable commodities explained ICRA Chief Economist.

Increased food prices contributed to a 13-month high in WPI inflation, reaching 1.26 percent in April. The WPI encompasses a significant proportion of commodities, with fluctuations in global commodity prices and exchange rates being mirrored in the index.

“Almost a quarter of the CPI is made up of services that wont find any place in the WPI at all. So indices have a very different composition and a very different nature in terms of how the inflation rates move. It is fairly common for the WPI and CPI to be at very different levels and moving at different directions at the same time,” Aditi Nayar told PTI in the interview.