TREND: Economists see red, up Jul-Sep CPI view on tomato price spike
Informist, Monday, Jul 17, 2023
By Priyansh Verma and Shubham Rana
NEW DELHI – The sharp rise in tomato prices has prompted many economists to raise their inflation projection for Jul-Sep.
In June, retail inflation rose to a higher-than-expected 4.81% from 4.31% in May, primarily due to the sharp rise in the vegetables index. The index rose 12.2% on month in June, driven by a 64.5% increase in tomato prices.
As On Sunday, The All-India Average Retail Price Of Tomato Was Up 295% Month-on-month At 118.9 Rupees Per Kg
"We're projecting CPI inflation in Jul-Sep to be in the range of 5.5-6.0%," said Abhishek Upadhyay, senior economist, ICICI Securities Primary Dealership.
"Earlier, we were assuming actual inflation in the second quarter would be 30-40 basis points lower than the RBI's forecast, but due to the spike we are seeing in vegetables, particularly tomato, the projection for Jul-Sep has changed," Upadhyay said. For July, Upadhyay sees CPI inflation around 6%.
The Reserve Bank of India has projected CPI inflation at 5.2% in the second quarter of the current financial year ending March.
As on Sunday, the all-India average retail price of tomato was up 295% month-on-month at 118.9 rupees per kg, according to the data on the Department of Consumer Affairs website.
"Prices of tomato are likely to remain in the range of 80-120 rupees per kg till end-September," according to a Mumbai-based trader. "Tomato prices are sky-high due to supply crunch...the prices are expected to fall in October to about 40-50 rupees per kg, as new crop will come in the market around that time."
The rise in tomato prices is mainly due to lack of supply of good quality tomatoes in key markets, as farmers abandoned their crop in March and April due to extreme heatwave conditions across the country. The flowering stage of the crop was affected in Apr-May due to a rise in maximum temperatures. The late onset of monsoon over key growing states such as Andhra Pradesh and Maharashtra also affected production.
"Tomato prices are usually highest during Jul-Aug as this is the lean production period," said QuantEco Research in a report.
The price momentum of tomato, one of the three key vegetables in the CPI basket, affects the headline print reasonably.
Tomatoes account for nearly 10% of the total weight of 6.4% for vegetables index.
Sakshi Gupta, principal economist, HDFC Bank, expects Jul-Sep CPI inflation to average 5.3%, up 20 bps from their previous projection. "We've revised our projection due to combination of increases in key items of the food basket," Gupta said. "The increase has not only been in vegetables, but also in pulses, cereals and milk."
The indices of 'pulses and products' and 'cereals and products' rose sharply by 3.4% and 0.6%, respectively, month-on-month, in June. The 'milk and products' index rose by 0.3%.
If tomato prices rise without any substantial change in potato and onion prices, then inflation will average near 5.8% year-on-year in Jul-Sep, according to State Bank of India Group Chief Economic Adviser Soumya Kanti Ghosh. But if the prices of all three--tomato, potato, and onion--rise, then CPI might average 6.0% on year in Jul-Sep, Ghosh said in a report.
In June, the index of potato and onion rose 10.5% and 8.1% month-on-month, respectively. Potato accounts for 16% of the vegetable index, while onion accounts for 10%.
However, some economists believe tomato prices will come down soon. Tomato prices are likely to come down within a month, CRISIL's Chief Economist Dharmakirti Joshi said. End
