Tomato, onion, potato, fuelling food inflation; may push retail inflation to 6% in FY24: SBI

State Bank of India (SBI) research on Thursday said price variation in staples like tomato, onion and potato is the chief cause behind volatility in the price of vegetables and food inflation. SBI Research also pointed out that if tomato prices continue to increase, Consumer Price Index (CPI) based inflation – retail inflation – will touch 6%, which is the upper tolerance limit of the Reserve Bank of India.

"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," SBI Research said in its report, Ecowrap

Accordingly, average CPI for FY24 will vary between 5.2%-5.4% while also calling for a higher vigil on the prices. "Though, the retail inflation remained within the tolerance range of the RBI for the fourth consecutive month (and will remain for the rest of the fiscal), continued vigil on the evolving inflation outlook is warranted given the progress of monsoon and its impact on Kharif sowing and subsequently on cereals inflation," the report added.  

"While at all India level rainfall is 2% above normal till 12 July, the spatial distribution is uneven. The north-west India has rains of 59% above normal, the south peninsula has a deficit of 23%. However, these uneven rains will have minimal impact on food grains production," it said.  

"Further, to see the price cycles of cereals and pulses, we analysed the monthly inflation data of cereals and pulses from January 2012 to till now (June 2023). The results indicate that in an increasing price cycle, cereals continue to rise on an average for 20 months and pulses 19 months. While in a declining price cycle, cereal prices decline continuously for 15-months and pulses by 21 months. Currently, cereal prices are on a declining trend, while pulse prices are on an increasing trend. It is thus crucial to mitigate the increase in pulse prices through Government intervention," it added.