Food inflation surges to four-month high in April

Context:

Indian consumers witnessed a notable surge in food prices in April, with food inflation reaching a four-month high of 8.7%, despite the overall retail inflation rate remaining relatively unchanged.

Relevance:
GS-03 (Economy)

Key Highlights:

  • Urban-Rural Disparity: The disparity between urban and rural inflation experiences persisted, with rural households facing a sharper uptick of 8.75% compared to 4.11% for urban consumers. This gap remained pronounced for the second consecutive month.
  • Month-on-Month Price Increase: Price levels saw a month-on-month increase of about 0.5%, with urban consumers experiencing a more significant uptick, particularly in food prices, which rose by 1.03% from March levels.
  • Expectations of Easing: The Reserve Bank of India anticipates a moderation in retail inflation to an average of 4.5% for the year, with the April to June quarter projected to see an average inflation of 4.9%. However, economists foresee no shift in monetary policy until inflation aligns with the RBI’s 4% target.
  • Factors Influencing Inflation: Despite the rise in food prices, the marginal decline in headline inflation was attributed to a sharper drop in fuel and light prices, along with mildly lower inflation in various other categories such as clothing, housing, and health.

Consumer Food Price Inflation (CFPI)

  • Consumer Food Price Inflation (CFPI) is a metric that specifically gauges the rate of price changes in food items within a consumer’s basket of goods and services.
  • It focuses solely on the inflationary trends of food products consumed by the average household over time.
  • CFPI is a subset of the broader Consumer Price Index (CPI), with the Reserve Bank Of India (RBI) utilizing CPI-Combined (CPI-C) for this purpose.
  • It tracks the fluctuation in prices of a designated basket of food items typically consumed by households, including cereals, vegetables, fruits, dairy products, meat, and other essential food staples.

Consumer Price Index (CPI)

  • CPI inflation, also known as retail inflation, indicates the rate at which prices of goods and services that consumers purchase for personal use increase over time.
  • It measures the alteration in the cost of a diverse array of goods and services commonly bought by households, encompassing food, clothing, housing, transportation, and medical care.

The CPI comprises four categories:

  • CPI for Industrial Workers (IW).
  • CPI for Agricultural Labourer (AL).
  • CPI for Rural Labourer (RL).
  • CPI for Urban Non-Manual Employees (UNME).
  • The first three are compiled by the Labour Bureau in the Ministry of Labour and Employment, while the fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.

Factors Behind Food Price Inflation

  • Supply and Demand Dynamics: Imbalances between food supply and demand, caused by factors like extreme weather events or changes in consumer preferences, can lead to price hikes.
  • Production Costs: Escalating expenses for farmers, such as fuel, fertilizer, and labor, can translate into higher food prices.
  • Energy Prices: Fluctuations in energy costs, especially fuel, affect transportation expenses in the food supply chain, influencing consumer prices.
  • Currency Exchange Rates: Variations in exchange rates can impact food prices, particularly for countries reliant on imported food.
  • Trade Policies: Tariffs and trade regulations can affect both imported and domestically produced food prices.
  • Government Policies: Subsidies, price controls, and regulations enforced by governments can influence food prices.
  • Global Events: Geopolitical conflicts, pandemics, and trade disruptions can disrupt food supply chains, leading to price spikes.
  • Climate Change: Climate-related events like droughts and floods can damage crops, reduce yields, and elevate food prices in the long term.