Headline Inflation Faces Upside Pressures In Near Term On Costlier Vegetables
The spike in vegetable prices, led by tomatoes, will exert sizeable upside pressures on the near-term headline inflation trajectory, according to the minutes of the MPC meeting released by the RBI on Thursday. It said the possibility of a second round impact of food price shocks on the overall inflation prompted RBI MPC to opt for the status quo on the policy rate earlier this month.
The Reserve Bank of India (RBI) at its last bi-monthly monetary policy committee (MPC) meeting on August 10 decided to keep the benchmark interest rate (repo rate) unchanged at 6.5 per cent citing inflationary concerns.
All six members, including M D Patra, Shashanka Bhide, Ashima Goyal, Jayanth R Varma and Rajiv Ranjan, voted for status quo on the policy rate.
“Our task (of containing inflation) is still not over. Given the likely short-term nature of the vegetable price shocks, monetary policy can look through the first-round impact of fleeting shocks on headline inflation. At the same time, we need to be ready to pre-empt any second-round impact of food price shocks on the broader inflationary pressures and risks to anchoring of inflation expectations," opined Das, as per the minutes of the meeting released by the RBI on Thursday.
According to the RBI MPC minutes, going forward, the spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory.
“This jump is, however, likely to correct with fresh market arrivals. There has been significant improvement in the progress of the monsoon and kharif sowing in July; however, the impact of the uneven rainfall distribution warrants careful monitoring," according to the minutes.
According to RBI Deputy Governor Patra, ensuring the sustained easing of core inflation was crucial to the MPC's objective of bringing inflation down to the target.
“This objective should not be undermined by supply shocks that show any signs of persisting and getting broader-based," he argued while voting for maintaining the status quo on the policy rate and for persevering with the withdrawal of monetary policy accommodation.
Diamond industry grapples with major slump in demand
India’s diamond cutting and polishing trade is facing an unprecedented crisis amid falling demand, prompting trade bodies to ask members to halt the imports of rough stones for two months.
This is the “worst-ever demand crisis," said Anoop Vrajlal Mehta, president of Bharat Diamond Bourse (BDB), India's hub of diamond trading with the rest of the world. This is just the fifth time since the 1970s that trade associations have made such an appeal to members to halt imports.
The country cuts and polishes nine out of 10 of the world's rough diamonds, providing employment to two million Indians. So far this financial year, exports are down 30.27% from a year ago to $7.03 billion, the worst fall in at least five years.
Demand has collapsed in China, which is battling an economic slowdown after a property bubble burst. In the US, another key market, consumers are shunning luxury goods amid high inflation fuelled by an easy monetary policy during the pandemic. China accounts for 13% of polished diamond exports from India and the US 45-48%.
“Polished diamond prices have fallen by 15-20% from a year ago," said Mehta, who is also chairman and managing director of Mohit Diamonds, one of the 38 Indian sightholders of De Beers. Sightholders are companies authorized by De Beers to buy rough diamonds.
What's worrying is that the fall in demand seems to be structural, with prices for natural diamonds (as opposed to lab-grown diamonds) collapsing by 59% in the past three years, according to a report by Edahn Golan Diamond Research.
“In China, because of a general economic slowdown…offtake has completely ceased, and the US is seeing around 5-10% dent in demand because of tighter monetary conditions," said Vipul Shah, managing director and chief executive officer of Asian Star, another De Beers sightholder.
Shah said a recovery from this demand downturn “seems more difficult" compared to past instances.
Low demand has led to a pile-up of inventory, and thus the call to halt imports, added Shah. “That's why we need to balance the supply-demand dynamic and take a call on the evolving situation by November end."
Industry associations such as the commerce ministry-sponsored Gem and Jewellery Export Promotion Council (GJEPC), BDB and Surat Diamond Bourse have called for a halt on imports of rough diamonds from 15 October to 15 December by their members. Previous instances of such import interruptions include Saudi Arabia's oil embargo in 1973, the 1992 balance of payments crisis in India, the 2008 global financial crisis and in 2019 due to a slowdown just months before the pandemic.
The outlook, too, is none too promising with order books for cutting and polishing down compared to a year ago.
“The domestic market is doing well, but wherever the economy is struggling, exports are not picking up," said Shah, who is also chairman of the GJEPC. Traditionally, gems and jewellery demand picks up ahead of the festive season, but that is not happening this year.
India imports rough diamonds from the likes of De Beers, Rio Tinto and Russia's Alrosa. The imports flow through BDB, from where they are shipped to Surat Diamond Bourse, where cutting and polishing happen before polished diamonds are re-routed to BDB, from where they are exported to the US, Hong Kong and Belgium.
Source: Live Mint
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Roti Rice Rate Report
Higher tomato prices pushed up the cost of vegetarian thali by 24 per cent in August compared to the year-ago period, according to a report.
The cost, however, eased marginally when compared to July, Crisil Market Intelligence and Analytics monthly ‘Roti Rice Rate' report said on Thursday.
In August, the cost of a vegetarian thali declined marginally month-on-month on a high base and was elevated year-on-year for the second time this fiscal, primarily because of firm tomato prices.
The cost of a non-vegetarian thali rose 13 per cent year-on-year, it added.
Of the 24 per cent rise in the vegetarian thali cost, 21 per cent can be attributed solely to the price of tomato, which rose 176 per cent year-on-year to Rs 102 per kg in August compared to Rs 37 per kg in the same month last year, the report said.
As per the report, for non-vegetarian thali, the increase was less as the price of broilers, which contributes to more than 50 per cent of the cost, is estimated to have risen a moderate 1-3 per cent year-on-year.
A 17 per cent decline in the price of vegetable oil and 14 per cent in potatoes in August as against the year-ago period, cushioned the cost of both thalis to an extent, it said.
The report said the prices of thalis could drop in September as tomato retail price has halved month-on-month to Rs 51 per kg.
Also, the cost of a 14.2 kg LPG cylinder, which was Rs 1,103 in August, has been cut to Rs 903 from September, could provide more relief to consumers, it added.
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Food inflation is still a cause for concern
New Delhi: Packaged food company Nestle India on Thursday said it needs to monitor the specter of food inflation after a deficit rainfall in August is expected to impact kharif crop sowing. However, Suresh Narayanan, the chairman and managing director of Nestlé India, said consumer demand at the moment remains “stable and robust".
“Now, it is seeming reasonably clear with the deficit of monsoons, already reported at 30%, even if kharif sowing is good, kharif productivity might get impacted. And with this el-nino effect, still not having fully played out, we still have to watch for the specter of food inflation. There will be pressure in terms of food inflation, headline inflation will get mitigated because of the various steps that the government will take but food inflation is still a cause for concern," Narayanan told reporters on Thursday.
To be sure, the erratic progress of the southwest monsoon has resulted in a spike in the prices of the domestic food basket, ratings firm CareEdge said in a report. Meanwhile, August rainfall deficit stood at 36%. As a result, overall monsoon rain is in IMD's ‘below normal' category with 10% below the benchmark long period average during 1 June-31 August, Mint reported on Thursday. “On the one hand, excess rainfall over a short period has resulted in flooding in certain parts of India, adversely impacting the production of certain crops; on the other hand, significant deficit rainfall in certain pockets has adversely affected the sowing activity," CareEdge Ratings said in a note dated 29 August.
Nestle's products rely on a variety of commodities such as milk, edible oils, coffee, wheat and sugar.
In the June quarter—Nestlé's rural sales growth outpaced urban markets in the with the company expanding its rural footprint. To be sure the maker of Maggi noodles draws 20% of its sales from rural markets. "Immediately put I would not say that something alarmist is happening, in terms of commodity prices. But we will have to watch this space, i.e. how this evolves—the impact being really for 2024, rather than an immediate impact," he added, saying that at the moment, things are looking stable. “Overall, demand is fairly stable and robust. One can look forward to a good festival season," he said.
On Thursday, the company announced the launch of millet-based ready to make meals under its a+ brand reinforcing its presence in the packaged and convenience foods space. The company will further extend the use of millets to products such as beverages and packaged noodles. It already sells breakfast cereals infused with ragi. Nestlé R&D Centre India Private Limited, Manesar (a subsidiary of Nestlé S.A and a part of Nestlé's global R&D network) signed an MOU with Nutrihub-IIMR with an aim to collaborate in areas such as millet processing, health and nutrition benefits, millet sustainable regenerative agriculture practices and start-up collaborations.
"In line with the government focus on millets, Nestlé India is creating a differentiated food portfolio across brands that promotes millet as a more sustainable food option, through partnerships and product innovations. As a part of this initiative, Nestlé India has launched Nestlé a+ Masala Millet that contains bajra," the company said. A single-serve pack priced at Rs. 30 for 40 gm.
Source: Live Mint
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Why the government cut LPG prices by ₹200
The Union cabinet on Tuesday approved a reduction ₹200 on domestic liquified petroleum gas (LPG) cylinders or cooking gas. The move comes in the backdrop of high inflation and also at a time when the government is gearing up for assembly elections in five states as well as general elections next year. Here's a look at the factors behind the decision and its likely impact.
Why did the government reduce LPG prices?
The price cut has been announced in a bid to tame inflation in the country. Retail inflation in July reached 7.44% from 4.87% in June, with consumers facing a sharp 11.5% spike in food prices. This is the fastest pace of retail inflation since April 2022 and the first time since September 2022 that it has scaled 7%. Inflation in the fuel and light segment increased 3.67% on a year-on-year basis. Further, the decision also comes ahead of key assembly elections in five states and general elections in 2024. Cooking gas is a politically sensitive commodity given its impact on household budgets.
What are the prices across cities post the reduction?
In the national capital, the 14.2-kg domestic LPG cylinder was priced at ₹903 on Wednesday, down from ₹1,103 on Tuesday. Similarly, domestic LPG prices in Kolkata, Mumbai and Chennai stood at ₹929, ₹902.50 and ₹918.50, respectively, after the price cut. The price cut is also applicable for subsidized cylinders under the Pradhan Mantri Ujjwala Yojana (PMUY) scheme. These cylinders already get a subsidy of ₹200. For beneficiaries of PMUY, the price now is ₹703 in the national capital.
What has been the trend in LPG prices?
Domestic oil marketing companies (OMCs) have been raising prices of LPG, or cooking gas, intermittently, amid a surge in global gas prices after the Ukraine war. However, since the majority of Indian population relies on LPG, it comprises a major part of a household budget, making it a politically sensitive commodity. As a result, the price rise of a 14-kg LPG cylinder has not seen an increase in line with global prices. In a recent response in Parliament, the union petroleum ministry said that the increase in international prices was not fully passed on to retail consumers. Government data showed that during the period under review, LPG prices in the national capital rose by ₹359 from ₹744 to ₹1,103 per cylinder in the national capital.
What the other steps taken by the government to mitigate the impact of rising gas prices?
On Tuesday, the cabinet also decided to provide 7.5 million new LPG connections for free under the Ujjwala scheme. Further, as the increase in international prices has not been fully passed on to consumers, OMCs suffered under-recoveries of around ₹28,000 crore on sales of domestic LPG. To compensate this, the government approved a one-time compensation of ₹22,000 crore to OMCs in FY23. Further, during the Covid-19 pandemic, the Centre had also provided about 14.17 crore free LPG refills to Pradhan Mantri Ujjwala Yojana (PMUY) households under Pradhan Mantri Gareeb Kalyan package during 2020. Also, effective 21 May 2022, the Central government started a targeted subsidy of ₹200 per cylinder for PMUY beneficiaries for up to 12 refills a year for 2022-23 and 2023-24.
Source: Live Mint
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