Vegetable prices, already witnessing a spike, are likely to keep inflation elevated till June, when a normal monsoon provides some reprieve.
“The impact of the heatwave will be most apparent in perishable food varieties, especially vegetables, which is one of the most volatile parts of the inflation basket and has consistently punched above its weight in FY24,” said Radhika Rao, executive director and senior economist, DBS Group Research.
Rao pointed out that the impact on inflation could be 30-50 bps if the sequential pace of increase is 50-100% higher than the seasonal increase, which happens around this time.
“The prevailing heatwave is anticipated to adversely affect rural farm income, food inflation, and general health conditions,” said Rajani Sinha, chief economist, CareEdge. While consumer inflation declined to a 10-month low of 4.9% in March, food inflation was a high 8.5%. Vegetable inflation at 28% was a primary contributor to higher food inflation. Vegetable inflation has been in double digits for five consecutive months. Experts indicate that it is likely to average around 28% in the current quarter as well. Not just vegetables, but fruits may also see an uptick in inflation, according to experts. “This phenomenon will keep the prices of perishables like vegetables and fruits high, impacting their yield and shelf life and thereby leading to lower supply,” Sinha noted.
Fruits and vegetables have an 8.9% weight in the overall inflation basket.Debopam Chaudhuri, chief economist, Piramal Group, highlighted how logistical issues that tend to amplify during weather extremes could also contribute to volatility. Heatwaves could also have a spillover effect on kharif season if the monsoon is below normal, as reservoir levels are further expected to decline.
