Spillovers from tomato price spikes remain a major concern: RBI

The Reserve Bank of India (RBI) on Tuesday said that spillovers from tomato price spikes to prices of other commodities and unhinging inflation expectations remain a major concern.

Historically, tomato prices have been an important contributor to volatility in overall inflation, the central bank says in its monthly bulletin. This volatility also gets transmitted to prices of other vegetables in both retail and wholesale markets, it adds.

The recent spike in tomato prices on account of crop damage due to inclement weather and pest attacks in the major production belts has received widespread attention as it has taken a toll on households' budgets, the RBI says.

Retail price of tomatoes in several parts of the country have soared to over ₹200 per kg.

Increasing amplitudes of price spells over the years calls for improving the supply chains to contain overall inflation volatility, the banking regulator says.

Tomato, being a highly perishable item with a very short crop duration, exhibits considerable seasonal variation in prices but these episodes are short lived, says the RBI. The average duration of a high price episode shows that prices stay above ₹40 for an average duration of 2.6 fortnights whereas prices remain below ₹20 for an average duration of 10 fortnights, it adds.

"High frequency food price data for July so far (up to 12th) point to a sustained increase in cereal prices. Prices of pulses and vegetables recorded a general uptick with tomato prices registering the maximum increase. Edible oil prices continued to slide down in line with the fall in global prices," the RBI says.

Multiple crop cycles with varying time span across locations lead to more than one spell of price spike within the same year, according to RBI. While the yearly peaks have exhibited a general increase, the troughs have remained largely constant, indicating that prices do not ratchet up across spells.

In order to bring down tomato prices for consumers, the ministry of consumer affairs has asked the National Agricultural Cooperative Marketing Federation (NAFED) and National Cooperative Consumers Federation (NCCF) to procure tomatoes from Andhra Pradesh, Karnataka and Maharashtra. The procured tomatoes will be distributed in major consumption centres where retail prices have recorded a maximum increase in the last month.

According to SBI Research, price variation in staples like tomatoes, onions and potatoes is the chief cause behind the volatility in the price of vegetables and food inflation. If tomato prices continue to increase, retail inflation will touch 6%, which is the upper tolerance limit of the Reserve Bank, SBI Research said in its report.

"Analysing volatility in vegetable prices, tomato, onion and potato (TOP) form the staples in Indian kitchen and their price variation is the chief cause of volatility in vegetable/food inflation. We believe if tomato prices increase without any substantial change in potato and onion then average inflation in Q2 FY24 will come near 5.8% year on year but if the TOP inflation increases, then CPI might come around 6.0% yoy in Q2 FY24," the report said.