High agri prices to put pressure on food inflation

The WPI rise of 0.34 per cent in April was because of two successive years  of drought, resulting in lower output of pulses, sugar and vegetables

The wholesale price index (WPI), which climbed in April after 17 months of decline, is likely to accelerate on rising commodity and food prices.

Sharp spikes in the prices of pulses, vegetables and sugar led to the turnaround in the WPI for April. With monsoon rain forecast to be surplus, experts believe food prices will remain high till the summer crop arrives in August.

The WPI rise of 0.34 per cent in April was the impact of two preceding drought years resulting in lower output of pulses, sugar and vegetables. Unseasonal rain early this year also damaged standing crops.

“The WPI’s manufactured products component is likely to see some upward movement in the coming months. There might be some catch-up in the WPI fuel index,” said Richa Gupta, senior economist, Deloitte.

“Expect the WPI to rise through most of the year and possibly breach the 3 per cent mark in due course,” she added.Despite counter-measures by the government, pulses prices jumped by nearly 25 per cent to Rs 5,720 a quintal (chana) in April. Prices had moderated in March on the government’s efforts. “Pulses production was lower globally due to El Nino. Consumers will have to live with higher prices until the next crop arrives,” said Bimal Kothari, managing director, Pancham International, a pulses importer.

The agriculture ministry in its third advance estimates put pulses production at 17.06 million tonnes for 2015-16, the lowest in five years.

Sugar prices have risen sharply in the last few months over lower production estimates to trade currently at Rs 3,700 a quintal. The Indian Sugar Mills’ Association (ISMA) has forecast output at 25 million tonnes in the current season against 28.3 million tonnes a year ago. Sugar has been rising since August in anticipation of stock clearance and lower output in Maharashtra.

The announcement of a cane production subsidy in December, an expected increase in exports, and a likely global sugar deficit are causing prices to firm up.“The trend in sugar is dependent on exports as well as expectations of output,” said Sabyasachi Majumdar, senior vice-president, ICRA. Potato prices have surged 20 per cent in the Agra market to Rs 1,000 a quintal. The vegetable continued to move up in May when prices shot up by another 25 per cent.

Source: Business Standard