Climbing wheat prices take cereal inflation to a high of 16.12% in Jan

Some delay in offloading central wheat stocks causes spike

As the government took time to offload the central pool of wheat stocks, retail price inflation relating to the foodgrain jumped to an all-time high of 25 per cent in the new series in January.

This led to cereal inflation rising to 16.12 per cent in the month from 13.79 per cent in December.

Wholesale price index-based (WPI-based) inflation in wheat closely followed its retail counterpart at 23.63 per cent in January as against 20.72 per cent in the previous month and cereal inflation at 15.46 per cent compared to 14 per cent.

Rice prices were also high due to strong demand both in global and domestic markets. As a result, the consumer price index-based (CPI-based) inflation rate in rice remained elevated at 10.44 per cent in January, albeit a bit less than the 10.49 per cent in the previous month. 

The WPI inflation rate in paddy, meanwhile, rose to 7.18 per cent from 6.83 per cent over this period.

Liquidating the central pool of wheat stocks could start in only February. The first tender to sell 2.2 million tonnes of wheat from the central pool was offered on February 1 by the Food Corporation of India.

After liquidation started, the price in the open market cooled from around Rs 31 per kg to almost Rs 25 per kg in a fortnight.

 This will show in product prices (largely atta) also in the coming days. 

However, trade sources said a big decline was unlikely and prices might rule above the 2023-24 minimum support price (MSP) of Rs 21.25 per kg for some more time because pipeline stocks with flour millers and product makers were almost empty.

But, the situation could change dramatically in the days to come if the Central government, concerned over the stubborn prices, decides to offload extra quantities of wheat in the open market over and above its present quota of 3 million tonnes.

There are reports that the Centre might offload an extra 2 million tonnes of wheat in the market through the open market sale scheme. 

It might also impose some sort of control on stocks held by traders to ensure that adequate supplies are maintained in the market.

The steps are necessary in view of the coming wheat procurement season, which will start on April 1. If prices remain above the MSP, then, like last year, farmers won’t be keen to sell their produce to official procurement agencies, leading to a drop in stock levels, making the distribution of wheat through the rejigged Pradhan Mantri Gareeb Kalyan Anna Yojana challenging.

A counter-productive impact of measures to cool wheat prices might pull them much below the MSP, which could affect the farmers, a significant chunk of whom are in Madhya Pradesh and Rajasthan, which will go to the Assembly elections this year.

Amid all these, one uncertain factor is the size of the forthcoming wheat crop, which is due for harvest in the next few weeks.

If the weather remains favourable, the country is set to harvest a record wheat crop of over 112.1 million tonnes for 2023-24 marketing year, which would be 4.44 million tonnes more than in the previous year, according to the second advance estimate, released on Tuesday.

Any unusual jump in temperatures in the next few weeks could have a disruptive impact on the standing crop in places such as Punjab, Haryana, and west UP.

Experts say grain filling in wheat is from the end of February to March in north India. 

A rise in temperatures will lower the period of grain filling in wheat from 30 days to, say, 25-27 days, which would mean fewer quantities of grains and that much impact on the final yield, experts said.