Analysis-From grains to chicken and milk, India faces prolonged food inflation

Indian farmers, particularly in southern and western regions, are grappling with water shortages due to below-average monsoon rains, preventing them from planting winter crops. Rajewadi farmer Amarsingh Gushinge, 78, laments the scarcity of water and money, warning that lower crop yields could exacerbate food inflation. Prices of staples like sugar, pulses, wheat, and rice have already started climbing due to a severe El Niño.

Onion prices, a staple in Indian kitchens, are also rising, and milk and poultry products are becoming more expensive. This surge in food prices could anger millions of Indians, as high onion prices have led to state government unrest in the past. Higher food prices could weaken consumer spending, impacting sales of tractors and farm equipment.

Food inflation could reach around 10% in the October-December quarter, driven by weak rains, higher global prices, and rupee depreciation. The central bank may raise interest rates again in December to curb inflation. Protein has been a key contributor to price increases, with animal protein and spices accounting for nearly half of food inflation between March and August.

Higher feed and fodder costs, transport, packaging, and energy expenses, along with bird mortality from a heat wave, are to blame. While India holds surplus stocks of rice and wheat, prices remain high due to tight supplies of premium-quality grains. El Niño is affecting farm production worldwide, and the Russia-Ukraine war has disrupted grain and oil supplies from the Black Sea region, pushing up vegetable oil prices.

Policymakers will focus on sustaining economic activity while maintaining price stability in the second half of the financial year, considering elevated crude oil prices, higher food inflation, and an uncertain outlook for the kharif crop.