The government’s decision to lift a three-week ban on Indonesian palm oil exports and curb wheat exports will help ease food inflation and lead to higher overall consumer price index (CPI) inflation in the coming months, according to economists. However, food inflation may still be above the headline rate in the short term.
Food inflation has come on top of overall retail inflation in the last two months. It was 8.1% in April, while CPI inflation was 7.79%. Last month, edible oil and wheat inflation rates were 17.28% and 9.59%, respectively.
“We expect CPI to be around 7% in the coming months while food inflation will be 7.5% to 8% during this period,” said Madan Sabnavis, chief economist at Bank of Baroda.
According to Indranil Pan, chief economist at Yes Bank, food inflation may not come under the heading of retail inflation in May, despite restrictions on wheat exports and easing of palm oil imports. This is because of the pressure on prices from almost all categories of food products, be it cereals or even fruits and vegetables, and protein-rich items such as meat, eggs, fish, etc. “On the other hand, the sequential pace may slow down a bit, but due to last year’s unfavorable base effect, food inflation will continue to rise year after year.”
The price of edible oil has increased by 20-30% in the last one year due to high prices in the world market and deficit in domestic production. The government said global edible oil prices were under pressure due to a shortfall in global production and rising export taxes and tariffs from exporting countries.
Earlier this month, RBI Governor Shaktikant Das said that even if the central bank raises the repo rate by 40 bps to 4.4%, edible oil prices could rise further. He said it was due to export bans by major producing countries and the loss of sunflower oil production during the Russia-Ukraine war. “Looking ahead, food inflationary pressures may continue,” he said.
India imports about 55% of its annual consumption of edible oil. According to trade sources, the price of edible oil in the domestic market will moderate in the coming days as exports from Indonesia start from Monday.
Aditi Nair, chief economist at ICRA, said: “We have forecast lower food prices in May. You have to get down. “
The government last week banned the export of all varieties of wheat due to rising domestic prices of food grains, sharp decline in Rabi season production and insufficient stock to ensure subsidy under the National Food Security Act.
Official sources said about 4.5 million tonnes of wheat has already been contracted for shipment of which about 2 metric tonnes have been exported. However, since the ban was lifted, wheat market prices across Madhya Pradesh, Rajasthan, Uttar Pradesh, Punjab and Haryana have declined by 7-8% since the ban was imposed a week ago.
Wheat prices are expected to rule around the minimum support price of Rs 2,015 per quintal in the coming months, traders say. “Internal supply of palm oil will improve in the coming months and it will curb the rise in edible oil prices,” Ashok Gulati, chair professor of the Indian Council for Research on International Economic Relations (ICRIER), told FE.
However, Gulati said India should follow Indonesia’s lead and lift the wheat export ban to improve global supply. The government on Thursday revised its wheat production estimate for the 2021-22 crop year (July-June) to 106 million tonnes (MT) from 111 metric tonnes in February.
Annual imports of edible oil are about 13 metric tons, mostly palm oil (8 metric tons), soybean and sunflower. Palm oil is imported from Malaysia and Indonesia.
Pan said: “It was decided to ban wheat exports in the major wheat-producing states of the country due to severe crop losses due to abnormal heat waves. Under current stocking rules, buffer stock should be approximately 27.5 metric tons by July 1 of each year. As of May, FCI has a reserve of 30.3 metric tons. Thus, the margin of error is thin and therefore the ban on wheat was not intended to curb inflation but to maintain domestic food security.