Rising prices of non-perishables may not allow food inflation to cool soon

Inflation being driven by cereals, spices, milk, prepared meals and snacks

Retail food inflation might have cooled down to a one-year low of 4.19 per cent in December 2022 from 4.67 per cent in November, but worries around it remain.

The concern comes from non-perishable food items – those outside of the fruits and vegetables category (the perishables). Perishables, meanwhile, continued to register a decline in prices for the second month in a row in December.

Deflation in perishable food items, in fact, rose to 10.3 per cent in December, up from 5.1 per cent in November.

On the other hand, non-perishable food items witnessed inflation at a 29-month high of 8.4 per cent in December, up from 7.8 per  cent in November.  

Inflation in non-perishables is currently being driven by cereals, spices, milk, prepared meals and snacks. This may pose a challenge to any persistent decline in food inflation in the months to come.

"Elevated non-perishable food inflation could potentially be a hurdle for a sustainable decline in overall food inflation," says Vivek Kumar, economist, QuantEco Research.

He says within food, the weight of perishables is nearly one-fourth of non-perishables. However, they are nearly four times more volatile.

Non-perishables have 36.9 per cent weight in the consumer price index (CPI), while perishables have 8.9 per cent. Food has around 46 per cent weight in the CPI.

In its report, QuantEco Research says, "Food inflation outside perishables does not seem to manifest the same degree of comfort. We note that while perishables being of volatile nature might act as a swing factor in certain months, non-perishables define the underlying trend in food inflation."

Even as retail price food inflation fell to a one-year low in December, the rate of price rise in cereals increased to 13.79 per cent from 12.96 per cent in November.

The retail inflation rate in wheat rose to 22.20 per cent in December from 19.67 per cent in November.

At the beginning of calendar 2022, it was just 5.1 per cent, but rose to 9.59 per cent at the start of the current financial year. From there, it more than doubled in December.

Rice inflation rate remained elevated even though it moderated to 10.49 per cent in December from 10.51 per cent in November. It was just 2.8 per cent in January and 3.96 per cent in April.

The rise in wheat and rice inflation may disturb the budget of the poor, and the government had earlier extended the free foodgrain scheme for 800 million people by three months till December 31. Now, it has made the public distribution system free for them, which would cost the exchequer an additional Rs 2 trillion annually.

A shortage of wheat and maize has also led to supply-side cuts in food, which has jacked up prices of milk. Retail price inflation in milk rose to 8.64 per cent in December from 8.23 per cent in November. The lumpy skin disease in cattle was also responsible for milk prices going up.

Overall, CPI inflation declined to a one-year low of 5.72 per cent in December from 5.88 per cent in November, according to data released recently by the Ministry of Statistics and Programme Implementation (MoSPI). And food, with a weight of 46-odd per cent, is critical to how the index moves.